Make
it Intact
INTACT FINANCIAL CORPORATION
ANNUAL REPORT 2021
Our Purpose,
Values and
Core Belief
We are here to help people, businesses and society
prosper in good times and be resilient in bad times.
Our Values guide our decision-making, keep us grounded,
help us outperform and are key to our success.
Integrity
Respect
Customer-driven
Excellence
Generosity
Be honest, open
and fair
Set high standards
Stand up for
what is right
Be kind
Listen to our customers
See diversity as a
strength
Be inclusive and
collaborate
Make it easy,
find solutions
Deliver second-to-none
experiences
Act with discipline and
drive to outperform
Embrace change,
improve every day
Celebrate success, yet
remain humble
Help others
Protect the
environment
Make our communities
more resilient
People are at the heart of our organization – and of our success.
How we do things is just as important as what we achieve. We are a purpose-driven
company based on values and a belief that insurance is about people, not things.
Table of contents
Profile and Industry Outperformance
Consolidated Financial Highlights
CEO’s Letter
Chairman’s Letter
Board of Directors and Executive Officers
2
3
7
12
14
MD&A and Financial Statements
Glossary
Financial History
Forward Looking Statements
Shareholder and Corporate Information
15
232
236
240
241
What we are aiming to achieve
3 out of 4 customers
are our advocates
4 out of 5 brokers value our
specialized expertise
Our customers
are our
ADVOCATES
Our people are
ENGAGED
We are a best
employer
Our employees and leaders
are representative of the
communities we serve
3 out of 4 stakeholders
recognize us as leaders in building
resilient communities
Achieve Net Zero by 2050, and
halve our operations emissions by 2030
Our company is
one of the
MOST RESPECTED
Exceed industry ROE by 5pts
Grow NOIPS 10% yearly over time
Our strategic roadmap
Expand our leadership
position in Canada
Strengthen our leading
position in UK & Ireland
Build a Specialty
Solutions leader
Leading customer
experience
3 out of 4 customers
digitally engaged
Leading customer
experience
3 out of 4 customers
digitally engaged
Specialized customer
value proposition
Expand
distribution
Scale in
distribution
Further
consolidation in
Canada
Optimize
Underwriting
performance
Focus footprint for
outperformance
Profitable & growing
mix of verticals
Consolidate
fragmented market
Outperform industry combined ratio by 5 pts
Low 90’s combined ratio
Low 90’s combined ratio
Transform our competitive advantages
Global leader in leveraging data and AI for
pricing and risk selection
Deep Claims expertise & strong
supply chain network
Strong capital & investment
management expertise
10%
NOIPS
GROWTH
ANNUALLY
OVER TIME
STR ENGTHEN OUR OUTPERFORMANCE MIN DSET
Invest in our people
Be a best employer
Be a destination for top talent & experts
Future proof our people to succeed
500 bps
ANNUAL
ROE
OUTPERFORMANCE*
*Based on a weighted-average industry ROE of P&C insurers in Canada, US and the UK.
1
Intact Financial Corporation Annual Report 2021 Table of contents
Profile and Industry Outperformance
A leading provider of P&C
insurance, with a proven
track record of industry
outperformance
Largest provider of P&C insurance in Canada with
some of the strongest brands in the market, a leading
provider of global specialty insurance, and a leader in
personal and commercial lines in the UK and Ireland.
$36.7B
Investment portfolio
26,000 +
employees
$20.8B
Operating DPW
(Proforma1)
65% Canada
25% UK & International
$20.8B
Operating DPW
(Proforma1)
29% Personal auto
25% Personal property
10% US
UK and International includes UK, Ireland, Europe and Middle East.
23% Specialty lines
23% Commercial lines
Industry Outperformance
Adjusted return on equity2
25%
20
15
10
5
0
Intact
Industry
(country weighted)
Estimate4
14.1%
Intact3
2012-2021
average
6.4 pts
2012-2021
average
outperformance
Our superior underwriting results, investment performance and
capital management have led to a better ROE than the industry.
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Canada combined ratio
Intact Canada
Benchmark5
4.8 pts
2012-2021
average
outperformance
US combined ratio
Intact US
Benchmark6
1.6 pts
2018-2021
average
outperformance
105%
100
95
90
85
80
100%
98
96
94
92
90
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2018
2019
2020
2021
Our sophisticated pricing, underwriting discipline and in-house claims expertise enable us to outperform the industry benchmark combined ratio.
1
2
3
Includes the impact of the RSA Acquisition for a full year.
Adjusted return on equity is a non-GAAP financial measure. See Section 38 – Non-GAAP
and other financial measures of the MD&A for the definition and reconciliation to the most
comparable GAAP measure.
IFC’s ROE outperformance is measured against the weighted-average industry ROE. The
weighting is based on deployed capital as follows: 2017 and prior Canada 100%; 2018 to 2020
Canada 80% and US 20%; 2021 Canada 74%, US 15%, UK 11%. Canada industry data is based
on MSA. US industry data is based on NAIC statutory filings for the top 200 US P&C insurance
entities and includes comparability adjustments.
Includes estimated UK industry ROE.
Canada industry benchmark consists of the 20 largest comparable companies in the P&C industry
based on MSA.
US industry benchmark consists of the 11 most relevant competitors in the P&C industry, for
which reliable and comparable information is publicly available.
4
5
6
2
Intact Financial Corporation Annual Report 2021 Consolidated Financial Highlights
Table of contents
Consolidated Financial Highlights
NOIPS1 and EPS
(in $ per share)
14
12
10
8
6
4
2
0
OROE1 and ROE1
(%)
20
15
10
5
00
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
12%
NOIPS 10 year CAGR
12%
EPS 10 year CAGR
14.7%
10 year average OROE
12.4%
10 year average ROE
Operating DPW1
(in $ billions)
Dividend per
common share
$17.3
13%
Operating DPW1
10 year CAGR
$4.00
10%
10 year CAGR
$3.40
$11.0
$12.0
$1.60
2019
2020
2021
2012
2021
20222
Growth reflects increased scale, strong growth from
acquisitions and organic expansion.
Track record of dividends increase; this represents
the 17th increase since initial public offering in 2005.
2021 Drivers of Operating Performance
Operating combined ratio1
88.8%
Net investment income
$706M
Distribution income1
$362M
2021 Financial strength
Book value per share
$82.34
Adjusted debt-to-total
capital ratio1
23.0%
Total capital margin
$2.9B
These are non-IFRS financial measures. See Section 38 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable GAAP measures.
1
2 Annual dividend for 2022 is projected.
3
Intact Financial Corporation Annual Report 2021 Table of contents
Canada
Canada
Largest P&C provider with
broad-based capabilities
and scale advantage
❚ Largest provider of P&C
insurance in Canada with an
approximate market share of 20%,
supported by the strongest brands
in the marketplace.
❚ Coast to coast presence and
broad product portfolio
comprised of two thirds personal
lines and one third commercial lines.
❚ Multi-channel distribution
platform focused on leading digital
solutions and second-to-none
customer experience.
❚
Industry-leading capabilities in
pricing, risk selection and claims
management.
❚ Track record of industry
outperformance on return
on equity.
❚ The successful integration
of RSA remains a key focus.
❚ We will continue to expand our
leadership position in Canada
through delivering a second to none
customer experience, driving scale
in distribution, accelerating digital
engagement and pursuing further
consolidation opportunities.
Operating DPW1
(in $ billions)
Operating
combined ratio1
2021 Performance
$12.0
$9.4
$10.2
95.9%
86.7%
88.0%
2019
2020
2021
2019
2020
2021
Operating DPW1
Personal
auto
Personal
property
Commercial
lines
$4.8B $3.1B $4.1B
86.9% 83.8% 88.6%
Operating
DPW1
Operating
Combined
Ratio1
Total number
of employees
~ 20,000
$13.6B
Proforma2
79% Brokers
and MGAs
21% Direct
$13.6B
Proforma2
40% Personal auto
26% Personal property
23% Commercial lines
11% Specialty lines
1 These are non-GAAP financial measures. See glossary on page 232 for definitions.
2
Includes the impact of the RSA Acquisition for a full year.
4
Intact Financial Corporation Annual Report 2021 UK and International
Leading Positions in the
UK & Ireland
❚ Leading Personal and Commercial
❚ Focus is on:
insurer in UK and Ireland.
❚ Strong UK domestic commercial
product offering through brokers
under the RSA brand, with an
emphasis on mid-market risks.
❚ Multinational, Specialty, and
Wholesale risks served through
the London market and European
operations.
❚ Strong presence in UK personal
insurance serving clients through
the direct insurance brand MORE
TH>N and affinity partners.
Operating DPW1
$2.5B
H2-2021
77% UK
11% Ireland
7% Europe
5% Middle-East
• scaling most profitable
portfolios;
• improving underwriting
performance by leveraging
risk selection, data and analytics,
and claims management
expertise; and
• simplifying the business and
investing in technology to
improve efficiency and customer
experience.
Operating
combined ratio1
93.4%
H2-2021
Table of contents
U.K. and International
H2-2021 Performance
Operating
DPW1
Operating
Combined
Ratio1
Personal
lines
Commercial
lines
$1.1B $1.4B
97.0% 90.5%
Total number
of employees
5,000 +
Operating DPW1
$5.2B
Proforma2
58% Brokers
and MGAs
42% Direct
$5.2B
Proforma2
12% Personal auto
30% Personal property
34% Commercial lines
24% Specialty lines
1 These are non-GAAP financial measures. See glossary on page 232 for definitions.
2
Includes the impact of the RSA Acquisition for a full year.
5
Intact Financial Corporation Annual Report 2021 Table of contents
United States of America
United States of America
Strongly positioned in the US
Specialty Insurance market
❚ Deep expertise across a broad
range of specialty insurance
products and services tailored
to meet the unique needs of
specific industry segments or
customer groups.
❚ Conduct business in all 50 states
under the Intact Insurance Specialty
Solutions brand and sold through
independent agencies, regional and
national brokers, and wholesalers
and managing general agencies.
❚ Strong profitability underpinned
by more sophisticated pricing and
predictive models, deep expertise
in underwriting and loss control,
as well as improved efficiency
primarily through IT investments.
❚ Build a Specialty Solutions leader
by expanding in outperforming
businesses, building out existing
distribution relationships, delivering
a specialized customer value
proposition and consolidating a
fragmented market.
Operating DPW1
(in $ billions)
Operating
combined ratio1
2021 Performance
$2.0
$1.7
$1.8
92.9%
93.2%
94.9%
2019
2020
2021
2019
2020
2021
Operating DPW1
$2.0B
2021
100% Brokers and
specialty lines
1 These are non-GAAP financial measures. See glossary on page 232 for definitions.
6
Specialty
lines
$2.0B
92.9%
Operating
DPW1
Operating
Combined
Ratio1
Total number of
employees
~ 1,400
Intact Financial Corporation Annual Report 2021 CEO’s Letter
Dear Shareholders:
Table of contents
CEO’s Letter
The world continues to face an
unprecedented period of upheaval.
From the ongoing socio-economic impacts
of the pandemic and the increasing
incidence of extreme weather, to the
humanitarian crisis inflicted by the war in
Ukraine, it remains an unsettling time.
At Intact, we live our Values of integrity, respect, customer-driven,
excellence and generosity no matter how tough the environment
is. Because we believe that values are more important than results.
And those values have been most helpful in guiding our actions over
the past year. In times like this it is also important to focus on why we
exist: to help people, businesses and society prosper in good times
and be resilient in bad times.
As I reflect on the past year, I believe our people have lived these
values and have been focused on helping to create a resilient society.
We manage Intact to ensure that we can be there for customers and
employees in all conditions. That’s why we entered the pandemic
from a position of strength. Our financial performance and strategic
advances last year are a testament to this philosophy. There is no
doubt in my mind that our strategic position and financial strength
have dramatically improved over the last year. Values, strategy
and financial performance are fundamental to our ability to help
customers and society.
In fact, it was a milestone year at Intact. We completed our largest
acquisition, onboarded 9,000 new colleagues, entered new markets,
and all that while delivering very strong results.
We built massive capabilities – investing heavily to position the
business for future success. Technology investments in Canada and
the U.S. improved the broker and customer experience, making it
easier for our employees to support them. We continued to improve
risk selection through our advanced AI capabilities and our claims
operations through supply chain management. We began to bring
the specialty lines business together under a global platform,
demonstrating an impressive growth trajectory.
Our people – now 26,000 strong – continued to bring their best every
day. They helped customers get back on track as quickly as possible in
a year dominated by floods, wildfire, wind and hail. These events have
vividly demonstrated how vulnerable communities are to the physical
impacts of climate change. As we prepare for a net zero world over
the next 30 years, we must double down on adapting to the current
impacts of extreme weather. At Intact, we have built a comprehensive
climate transition strategy over the last year that does just that.
We finished 2021 with an opportunity set that is ten times greater
than it was just five years ago. I believe we have the people,
the capabilities and the strategy to win where we play. More
importantly, we have demonstrated that we can win and help society
at the same time.
7
Chief Executive Officer
Charles Brindamour
Intact Financial Corporation Annual Report 2021 Table of contents
CEO’s Letter
2021 Performance in Review
We made excellent progress against our financial objectives in 2021. We did this while
integrating RSA, managing the impacts of severe weather and the pandemic, and making
new investments in the business.
Net operating income per share (NOIPS) grew 25% to $12.41 in 2021
and operating ROE stood at 17.8%, driven by robust underwriting
and distribution income, as well as meaningful accretion from RSA.
Our overall combined ratio of 88.8% reflected strong underlying
performance and
favourable prior year claims development.
Operating direct premiums written grew 45% to $17.3 billion, fuelled
by the RSA acquisition and solid organic growth.
Net investment income increased 22%, mainly on account of growth
in the investment portfolio following the RSA acquisition. In our
distribution business, income grew 32% to $362 million, driven by
higher variable commissions and accretive acquisitions.
The integration of RSA is on track across all geographies. With a 12%
accretion to NOIPS in the seven months since the transaction closed,
we have increased confidence in the quality of the acquired portfolio
and expected synergies.
Our balance sheet remains strong, with $2.9 billion of total capital
margin and solid regulated capital ratios in all jurisdictions. With
the sale of our 50% stake in Codan DK expected to close in the first
half of 2022, the adjusted debt-to-total capital ratio will return to
our target of 20%.
Given solid momentum across the business and a robust balance
sheet, we were pleased to increase the quarterly dividend by
10% to $1.00 per share and initiate a share buyback program in
February 2022.
Our financial objectives are to increase NOIPS 10% annually over
time and outperform the industry ROE by 500 bps every year.
We continue to meet and exceed this objective, with NOIPS
well over 10% this year, and an estimated ROE outperformance of
750 bps in 2021. Our track record over the past decade is strong,
with NOIPS compounding at 12% annually and our estimated ROE
outperformance averaging 640 bps.
Outlook
As economies emerge from the pandemic, we expect to operate in an inflationary
environment, with dislocation in supply chains and a tight labour market. Interest rates will
most likely continue to rise in the near- to-mid-term. While economies are currently robust,
we expect to operate in a period of suppressed growth over the mid-term. The war in Ukraine
and the resulting humanitarian crisis will exacerbate these conditions. As a result, we remain
prudent in managing our resources. We will focus on identifying and managing claims inflation
while being open to the opportunities presented in this environment.
We have observed that natural disasters have increased by a factor of
four over the last thirty years. This trend will continue unabated in the
coming decade. We remain proactive in managing climate inflation
and capitalizing on the need for protection across the markets in
which we operate.
Looking specifically at the insurance industry where we operate, we
expect poor pre-pandemic underwriting performance, inflationary
pressures, the war in Ukraine and capital markets volatility will keep
capacity and supply of insurance tight. This will result in rising prices
in the near to mid term. As an outperformer with a solid capital
position, this environment plays to our strengths.
In Canada, we expect firm market conditions to continue in personal
property, while personal auto rates remain tempered in the pandemic
environment.
In commercial lines across the U.S., Canada, and the UK & Ireland,
firm pricing conditions are expected to continue. In UK personal
lines, near-term industry growth levels are uncertain as companies
navigate the recently introduced pricing reforms.
8
Intact Financial Corporation Annual Report 2021 Table of contents
CEO’s Letter
Strategy
The acquisition of RSA makes us bigger and, more importantly, better. To capitalize on this,
we have updated our strategic objectives, outlining what we aim to achieve and how we
intend to get there as described in our strategic roadmap.
We have three strategic objectives that are common across Canada,
the U.S. and in the UK and Europe through the RSA Group. It starts
with our customers – we want 3 out of 4 customers to be our advocates,
meaning they would be willing to recommend us to friends and
family. We also aspire to have 4 out of 5 brokers value our specialized
expertise to ensure we are equipping them to provide the solutions
and advice our mutual customers are seeking.
Employees are at the heart of our success and our second objective
is to ensure our people are engaged. We measure this through
engagement surveys, benchmarking against best employer status.
Last year we also added a measure to ensure our employees and
leaders are representative of the communities we serve.
Our third objective is to ensure that we are one of the most respected
companies. Our financial measures include exceeding industry ROE
by five points and growing NOIPS by 10% yearly over time. We’ve also
added two non-financial metrics – to have 3 out of 4 stakeholders
recognize us as leaders in building resilient communities. And new for
2022 – to achieve net zero overall by 2050 and halve our corporate
operations emissions by 2030.
While ESG factors have always been embedded in our strategy, these
refreshed objectives make it easier to see our concrete targets in
relation to people, the planet and sustainable profitability.
We made substantial progress in advancing our roadmap in 2021,
and it is evolving rapidly in 2022. Here are some key highlights:
Expand our Leadership Position in Canada
We continued to expand our leadership position – growing by 30%
in Canada – with the acquisition of RSA in 2021. We immediately
established a collaborative approach despite a virtual working
environment. This helped us onboard employees in Canada faster
than any previous acquisition. The integration is on track and
remains a top priority in 2022. Louis Gagnon and his team are doing
a brilliant job.
Our distribution footprint is second to none in the industry. We
serve a wide range of customers, from those who want a simplified
experience through belairdirect to the advice-based service at
Intact Insurance and the specialized offerings at Intact Prestige. And
we now provide affinity insurance solutions through the Johnson
Affinity Groups.
We also distribute products on behalf of other insurers through
BrokerLink, which also had a banner year, completing 21 acquisitions
its reach coast to coast. This business now
and expanding
generates over $2.5 billion
in annual premiums and ranks
among the largest brokerages in Canada. Distribution income
is approaching $400 million annually and is a significant driver of
our ROE outperformance. BrokerLink also achieved all-time highs in
customer satisfaction this year.
We continued to ramp up our digital engagement with customers,
as use of our self-service tools increased another 10% in 2021. In fact,
more than half of our customers connected with us digitally last year.
We also saw 23% growth in Client Centre account registrations with
1.75 million Intact Financial customers now registered.
Updated versions of both the belairdirect and Intact Insurance mobile
apps were launched to improve the customer experience, resulting in
a 30% increase in mobile app log-ins.
Most of all, I’m proud of how we delivered for customers in what
was another challenging year. From the continuing waves of the
pandemic to increasingly intense weather, we really stepped up to
get our customers back on track.
Strengthen our Leading Position in
the UK & Ireland
In our UK & International operations we are focusing on where we
will win in the next 24 months. A strategic review is nearing completion
to develop a mid-term roadmap that will position the business for
outperformance.
As part of that review, we’ve identified the biggest priorities.
Strengthening pricing sophistication tops that list and we have a new
Data Lab team dedicated to this work. We will also look to capitalize
on opportunities in the mid-market and regions, and invest in
technology to increase the business’ agility.
We have a very talented team in the UK&I and we continue to build
on that strength. In addition to the appointment of Ken Norgrove as
CEO, changes were made in commercial lines, specialty lines and
underwriting teams to ensure that the right talent and structure are
in place to execute and deliver on our strategic roadmap.
Build a Specialty Solutions Leader
The RSA acquisition has substantially transformed our Specialty
Lines capabilities. Intact Global Specialty Lines is operating in four
major markets – Canada, U.S., UK, and Europe. The addition of RSA’s
London Market and European businesses broadens our distribution
footprint, provides existing specialty business access to new regions,
and ensures that customers and brokers can benefit from the full
breadth of specialized expertise across the organization. We can now
reach 70% of the global specialty solutions market.
It’s important to provide some context on how much stronger
this business is. Five years ago, when we welcomed Mike Miller to
Intact, Specialty Lines was generating $500 million in premiums.
Now thanks to Mike’s leadership, we are close to $5 billion with a
combined ratio below 90% in 2021. With the addition of the UK&I
business, our outperforming platform in North America now has new
capabilities, an even stronger team and global access. The economics
of this business are very compelling, and it is a cornerstone of our
growth strategy.
9
Intact Financial Corporation Annual Report 2021 Table of contents
CEO’s Letter
Transform our Competitive Advantages
Invest in Our People
Our track record of ROE out-performance is solid averaging at
640 bps over the last decade. But we don’t take past success for
granted. We remain focused on challenging our recipe to ensure we
capitalize on a changing world when it comes to how technology is
changing how people live. Transforming our competitive advantages
is key to our ability to outsmart our competitors. Investing in digital
acceleration, AI, claims expertise and supply chain penetration is
mission critical and a big differentiator.
The Data Lab continued to rapidly develop and deploy data and
AI applications throughout our business, with over 200 models in
production. Key deliverables were focused on improving our pricing
and risk selection capabilities. We also accelerated our deployment
of machine learning models in claims to accelerate cycle times, in
sales to reduce time required for call quality control, and to improve
our capabilities in Intact Investment Management.
We made major IT investments to modernize our core systems in both
Canada and the U.S. this year and we will begin similar investments
in the UK&I. Our new Omnichannel platform in Canada allows
customers to interact with us seamlessly by phone, email, text or chat.
Insourcing claims service over time has been a key advantage for us
and has resulted in better customer satisfaction levels. As part of the
RSA integration in Canada we hired more claims employees this year.
Our team grew to 5,000 including 200 new people for our claims
legal team. We continued to expand digital options for customers,
connecting in many forms, including via 73,000 texts, and providing
75% of claims payments via e-transfer.
On Side, our Canadian property restoration company, is the
largest such firm in Canada with 40 branches and more than 1,400
employees. On Side played a critical role during an active extreme
weather year. Two-thirds of On Side related claims had coverage
confirmed within two hours and this helped Intact achieve record
customer satisfaction scores for claims services provided during
catastrophes. Extreme weather will continue to intensify despite best
efforts to reduce carbon emissions, and the restoration business will
be an important area of growth and customer satisfaction.
Our people are at the heart of our strategy. It is critical that we have an
engaged and mobilized workforce that is proud of what they do and
enjoy and trust their colleagues. We continued to invest in building
an inspiring and inclusive workplace this year despite the challenges
of remote and hybrid work.
With 9,000 new colleagues we are now a global team of more than
26,000. The talent pool is very impressive – our people are top-notch
across our markets and in our shared services functions.
While our talent pool is now even stronger, we remain focused
on attracting and retaining top talent and experts. We offer an
environment where people can shape the future, win as a team and
grow with us. Retention and recruitment will be a key focus for us in
2022 in an increasingly tight labour market.
We continued to take concrete actions in diversity and inclusion
this year to ensure our employees and leaders represent the
communities we serve. We are addressing diversity at all levels of
the organization, including the Board of Directors. Our Count Me In!
campaign in Canada exceeded our objectives in 2021, with nearly
80% of employees sharing diversity information – helping us build
better career pathways. Our UK&I business became a signatory to
the Race at Work Charter and the Women in Finance Charter.
It was an intense year for our employees. Caring for people – one
of our leadership success factors – was more important than ever.
We enhanced our existing mental health and resilience supports.
For example, in Canada we provided access to LifeSpeak, an online
platform offering employees real-time access to expert mental
health support. And in the UK&I we provided refresher training to our
network of 170 certified mental health first aiders.
I am proud that these efforts have not gone unnoticed. We were
named a Best Employer in Canada, the U.S. and North America by
Kincentric in 2021. This is the sixth year running for Canada and the
third consecutive year for the U.S. In 2022, we will begin to measure
engagement across more markets including our UK business.
Intact
in finance, risk, capital and
Investment
Our people
Management have taken the organization to a whole new level,
Intact
operating among the best global teams.
Investment
Management now has almost $37 billion
in assets under
management, and will play an active role in encouraging investees
to disclose their net zero ambitions while continuing to generate
strong returns.
Social Impact and Climate
The pandemic has tested many aspects of society in an extraordinary way. Expectations are
changing at a pace never seen before, and businesses are responding.
As I wrote at the beginning of this letter, values really matter in a crisis.
At Intact, our Values have always informed how we define success.
That success includes how we help our customers, employees and
society, and must be backed by concrete actions.
Our social impact strategy defines how we help our communities,
and it reflects our Value of generosity. Our mandate is focused on
resilience. Building resiliency applies to climate change and to
creating opportunities for families and children living in poverty.
We believe our expertise, scale and resources can help accelerate
meaningful solutions to these complex challenges.
10
Intact Financial Corporation Annual Report 2021 Table of contents
CEO’s Letter
We will also be ramping up our climate resiliency partnerships in
the UK&I, and the U.S. starting in 2022. RSA Group invested nearly
£300k in 2021 on partnerships that support nature-based solutions,
protect biodiversity and offset carbon emissions.
Severe weather often impacts the most vulnerable people in their
communities. We are beginning to look at how we can build both
climate and economic resiliency among vulnerable populations.
While we can’t eliminate complex, deep-rooted societal problems
overnight, we can take immediate and concrete actions to help
find solutions.
We’ve invested $3.7 million globally in strategic partnerships that
create opportunity for children and families living in poverty –
activating
in education and social mobility;
employment and financial inclusion; and food security. And we will
continue to explore the intersection of climate change and poverty
and what we can do to help.
local solutions
In reflecting more broadly on the social upheaval of the last two years,
we need to work harder at finding common ground versus focusing
on what separates us. And businesses can do a better job of finding
out how their unique strengths can contribute to solving society’s
biggest problems. At Intact, we believe the intersection between
winning and helping is where strong and sustainable performance
can best be found.
We’ve been on the front lines of climate change for more than
a decade, helping our customers recover from the devastating
impacts of extreme weather, while actively managing the risks in our
business. We’ve recognized the importance of shifting from climate
defence to offence to find the intersection of helping and winning.
Our soon-to-be launched climate transition strategy seeks to find
that balance and incorporate an inclusive approach with our partners
and customers.
Intact’s global five-part climate plan
commitments:
includes the
following
1. Achieving net zero by 2050 and halving emissions from our
corporate operations by 2030;
2. Doubling down to help people adapt to climate change;
3. Shaping climate-friendly behaviour among customers;
4. Enabling the transformation of industries key to the transition; and
5. Collaborating with governments and industry to accelerate
climate action.
In doubling down on adaptation, we have increased our investment in
the Intact Centre on Climate Adaptation at the University of Waterloo
to $10.5 million over ten years. The Intact Centre also helped us
launch a $1 million Municipal Climate Resiliency Grant program to
help municipalities adapt to climate change.
In addition, we will soon announce an exciting partnership with the
Nature Conservancy of Canada, an NGO leading the way on natural
infrastructure conservation and stewardship.
Conclusion
While the world around us continues to be tough to navigate, Intact had an outstanding year in
2021. Building on our strong momentum we are focusing on five key areas in 2022:
1. Continuing the successful integration of RSA operations in
Canada, building out our Global Specialty Lines platform, and
transitioning the UK&I to sustainable outperformance over time;
2. Expanding our
leadership positions where we operate by
delivering for our customers through continued investments in
our brands, distribution, technology and digital capabilities;
3. Transforming our competitive advantages by accelerating our
data and AI advantage, and by continuing to leverage our size in
claims and supply chain management;
4. Accelerating the deployment of our climate strategy across the
globe; and
5. Investing in our people to attract and retain top talent and experts
and ease the transition to a flexible hybrid work environment.
I want to take a moment to talk about our Board. Claude Dussault,
our Chairman, has indicated that he will retire at the end of his term.
Claude has served as Board chair since 2008, director since 2000,
and as President and CEO of the company from 2001 to 2007. Claude
has been instrumental in the development and execution of our vision
and strategy over the last decade. I thank him for his leadership and
guidance. I’m also very pleased that Bill Young will become Chairman
at our Annual Meeting. I look forward to working closely with Bill and
the Board to build on our track record.
Most of all, I thank our employees across our markets for their
passion and dedication in continuing to deliver service that is second
to none to customers and brokers over the last year. While the world
may continue to experience volatility and upheaval for some time,
we have a strong financial foundation and a proven ability to thrive in
difficult environments. We are well positioned for continued growth
and success, with a strong team and an ambitious strategy.
Charles Brindamour
Chief Executive Officer
11
Intact Financial Corporation Annual Report 2021 Table of contents
Chairman’s Letter
Chairman’s Letter
Chairman of the Board
Claude Dussault
12
2021 was an outstanding year for Intact,
marked by the completion of the RSA
acquisition. The business has grown
significantly since the acquisition,
and we are establishing a truly global
specialty solutions platform. As the world
continues to navigate the uncertainties
of the pandemic, Intact has had to adapt
its business to changing circumstances,
and our strong financial position has
underpinned our ability to evolve and grow.
Intact ended the year in a position of strength. Our premiums
increased 45%, with RSA contributing 40 points, and our net
operating income per share was up 25%. The RSA integration is on
track. We welcomed 9,000 new colleagues and entered new markets.
Momentum across the business is strong.
These results stem from a solid business strategy that aims to build
and retain a strong and engaged team, have customers be our
advocates, and be recognized as respected leaders and industry
experts. The Board is pleased that Intact has once again been
recognized as one of Canada’s most respected companies, attaining
the top position in The Globe & Mail Board Games 2021 rankings for a
second year in a row. This reflects the company’s strong governance,
purpose and Values.
A company’s success directly reflects its team, which is why Intact
aims to attract, retain, and develop high-performing employees
with a wide range of experiences, abilities, and backgrounds. One
of Intact’s strategic objectives is to reflect the communities it serves
and we established goals to achieve greater diversity on our Board
in 2021. Bringing diverse perspectives to the table is key to building
an engaged team and this will strengthen our position in the market.
Intact was founded on a belief that insurance is about people, not
things – with a purpose to help people, businesses, and society
prosper in good times and be resilient in bad times. On top of
the challenges brought on by the pandemic, climate change and
extreme weather have made 2021 a difficult year for customers,
brokers, and employees across our markets. For Intact, addressing
broader social issues such as climate is a fundamental part of
business strategy and Environmental, Social, Governance (ESG)
principles. This was an essential priority for the Board in 2021, as we
supported Management on charting a low carbon/net-zero path for
the company. We invite you to read more about how Intact manages
climate change and works to build a resilient society in the upcoming
Social Impact Report.
Intact Financial Corporation Annual Report 2021 Table of contents
Chairman’s Letter
I would also like to thank Charles Brindamour and his Executive team.
They have done an extraordinary job growing Intact into the strong,
global company it is today. Their calm and steadfast leadership in the
face of challenges gives me great confidence that Intact will continue
to prosper and serve the interests of all stakeholders.
Finally, as I sign off on my last letter as Chairman, I want to thank
employees, customers, brokers, and shareholders for their continued
trust and support. Intact’s strength, resilience and commitment to
excellence were made clear yet again this year, and I look forward to
seeing the company continue to outperform for many years to come.
Claude Dussault
Chairman of the Board
Another critical aspect of Intact’s strong governance and Values is
the regular communications among shareholders, the Board and
Management. In the past year, I and other members of the Board met
virtually with shareholders who together represented approximately
42% of our investor base. We believe it is important to maintain an
ongoing dialogue with our shareholders, both at the Board level as
well as with Management.
I want to take a moment to thank the members of the Board of
Directors for their leadership and dedication that have guided Intact
through challenges and uncertainty, helping it reach the strong
position it is in today. I thank Tim Penner, who is retiring after twelve
years of service on the Board, providing us with the benefit of his
experience and guidance on, among others, our Human Resources
and Compensation Committee as well as our Compliance Review
and Corporate Governance Committee. His contribution over the
past twelve years is extremely valued by his fellow Directors. I am
pleased to welcome Stephani Kingsmill as a nominee for election
to our Board at this year’s Annual Meeting of Shareholders. Should
she be elected, our Board will have an equal number of men and
women directors.
After fourteen years as Chair of the Board and eight years before that
as CEO of Intact, the time has come for me to retire and pass on the
torch. I’m thrilled to hand it to Bill Young, an exceptional director who
has had significant experience leading the boards of major Canadian
public companies. His knowledge and expertise have already
contributed significantly to the success of the company, and I know
Intact will continue to prosper under his leadership.
13
Intact Financial Corporation Annual Report 2021 Table of contents
Board of Directors and Executive Officers
Board of Directors
Claude Dussault
Chairman of the Board of Intact
Financial Corporation and President
of ACVA Investing Corporation
Charles Brindamour
Chief Executive Officer
Emmanuel Clarke ( ), ( )41
Corporate Director
Janet De Silva ( ), ( )41
President & CEO
of Toronto Region Board of Trade
Jane E. Kinney ( ), ( )2
Corporate Director
1
Robert G. Leary ( ), ( )43
Corporate Director
Sylvie Paquette ( ), ( )43
Corporate Director
Timothy H. Penner ( ), ( )3
Corporate Director
2
Stuart J. Russell ( ), ( )43
Professor of Electrical Engineering
and Computer Sciences at University
of California at Berkeley
Notes:
(1) Denotes member of the Audit Committee
(2) Denotes member of the Compliance Review and Corporate Governance Committee
(3) Denotes member of the Human Resources and Compensation Committee
(4) Denotes member of the Risk Management Committee
Executive Officers*
Dr. Indira Samarasekera ( ), ( )3
Corporate Director and
Senior Advisor, Bennett Jones, LLP
2
Frederick Singer ( ), ( )2
Corporate Director
1
Carolyn A. Wilkins ( ), ( )41
Senior Research Scholar at the Griswold
Center for Economic Policy Studies,
Princeton University
1
William L. Young ( ), ( )2
Corporate Director,
Chair, SNC-Lavalin Group Inc.
Complete biographies of the members
of the Board of Directors available on
www.intactfc.com.
Charles Brindamour
Chief Executive Officer
Ken Anderson
Chief Financial Officer and
Executive Director, RSA UK&I
Patrick Barbeau
Executive Vice President &
Chief Operating Officer
Sonya Côté
Senior Vice President and
Group Chief Internal Auditor
Frédéric Cotnoir
Executive Vice President &
Chief Legal Officer and Secretary
Debbie Coull-Cicchini
Executive Vice President, Intact Insurance
(excluding Québec)
Anne Fortin
Executive Vice President,
Direct Distribution and Chief Marketing
and Communications Officer
Louis Gagnon
Chief Executive Officer, Canada
Timothy Michael Miller
Chief Executive Officer,
Global Specialty Lines
Benoit Morissette
Executive Vice President,
Chief Risk & Actuarial Officer
Darren Godfrey
Executive Vice President,
Global Specialty Lines
Charlotte Jones
Chief Financial Officer, UK&I
Louis Marcotte
Executive Vice President &
Chief Financial Officer
Werner Muehlemann
Executive Vice President & Managing
Director, Intact Investment Management Inc.
Ken Norgrove
Chief Executive Officer, UK&I
Carla Smith
Executive Vice President & Chief People,
Strategy and Climate Officer
*As at February 8, 2022.
14
Intact Financial Corporation Annual Report 2021 Table of contents
MD&A and Financial Statements
MD&A and Financial Statements
Please note that the following MD&A and Financial Statements are provided as distinct sections with individual pagination:
MD&A – pages 1 to 121;
Financial Statements – pages 1 to 89.
15
Intact Financial Corporation Annual Report 2021 INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
OVERVIEW ...................................................................................................................................................................................................... 5
Section 1 - About Intact Financial Corporation................................................................................................................................................. 5
Section 2 - Segments and lines of business .................................................................................................................................................... 6
Section 3 - Building sustainable competitive advantages ................................................................................................................................. 7
PERFORMANCE .............................................................................................................................................................................................. 8
Section 4 - Consolidated performance ............................................................................................................................................................ 8
Section 5 - Segment performance ................................................................................................................................................................ 11
Section 6 - Canada segment (P&C Canada and Distribution) ......................................................................................................................... 12
Section 7 - UK and International (UK&I) segment .......................................................................................................................................... 18
Section 8 - US segment............................................................................................................................................................................... 22
Section 9 - Corporate .................................................................................................................................................................................. 25
Investment performance ............................................................................................................................................................. 26
Section 10 -
Income taxes ............................................................................................................................................................................. 28
Section 11 -
ENVIRONMENT & OUTLOOK ........................................................................................................................................................................ 30
Section 12 - P&C insurance industry outlook .................................................................................................................................................. 30
Section 13 -
Insurance industry at a glance..................................................................................................................................................... 33
Section 14 - COVID-19 pandemic update ....................................................................................................................................................... 37
Section 15 - Prior year claims development .................................................................................................................................................... 38
Section 16 - CAT losses and weather conditions............................................................................................................................................. 39
Section 17 - Seasonality of our P&C insurance business ................................................................................................................................. 42
STRATEGY .................................................................................................................................................................................................... 43
Section 18 -
What we are aiming to achieve .................................................................................................................................................. 43
Section 19 - Our strategic roadmap for the next 10 years................................................................................................................................. 43
Section 20 - Progress on our strategic roadmap.............................................................................................................................................. 44
Section 21 - Acquisition of RSA’s Canadian, UK and International operations ................................................................................................... 45
Section 22 - Progress on our two financial objectives ...................................................................................................................................... 47
Section 23 - Climate change .......................................................................................................................................................................... 48
FINANCIAL CONDITION ................................................................................................................................................................................ 53
Section 24 - Financial position ....................................................................................................................................................................... 53
Section 25 -
Investments and capital markets ................................................................................................................................................. 54
Section 26 - Claims liabilities and reinsurance ................................................................................................................................................ 58
Section 27 - Employee future benefit programs............................................................................................................................................... 61
Section 28 - Capital management .................................................................................................................................................................. 62
Section 29 - Foreign currency management.................................................................................................................................................... 71
RISK MANAGEMENT ..................................................................................................................................................................................... 72
Section 30 - Overview ................................................................................................................................................................................... 72
Section 31 - Risk management structure ........................................................................................................................................................ 73
Section 32 - Corporate governance and compliance program .......................................................................................................................... 75
Section 33 - Enterprise Risk Management ...................................................................................................................................................... 76
Section 34 - Off-balance sheet arrangements ................................................................................................................................................. 96
Section 35 - Sensitivity analysis to market risk ................................................................................................................................................ 97
ADDITIONAL INFORMATION ......................................................................................................................................................................... 98
Section 36 - Financial KPIs and definitions ..................................................................................................................................................... 98
Section 37 - Non-operating results ................................................................................................................................................................. 99
Section 38 - Non-GAAP and other financial measures................................................................................................................................... 100
Section 39 - Accounting and disclosure matters ............................................................................................................................................ 116
Section 40 - Shareholder information ........................................................................................................................................................... 118
Section 41 - Selected annual and quarterly information ................................................................................................................................. 119
Section 42 - Glossary and definitions ........................................................................................................................................................... 120
INTACT FINANCIAL CORPORATION 1
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
The following MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors (the “Board”)
for the year ended December 31, 2021. This MD&A is intended to enable the reader to assess our results of operations and financial
condition for the three- and twelve-month periods ended December 31, 2021, compared to the corresponding periods in 2020. It should
be read in conjunction with our Consolidated financial statements for our fiscal year ended December 31, 2021. This MD&A is dated
February 8, 2022.
“Intact”, the “Company”, “IFC”, “we” and “our” are terms used throughout this document to refer to Intact Financial Corporation and its
subsidiaries. Further information about Intact Financial Corporation, including the Annual Information Form, may be found online on
SEDAR at www.sedar.com.
On June 1, 2021, together with the Scandinavian P&C leader Tryg A/S, we completed the acquisition of RSA Insurance Group plc
(RSA). RSA’s results of operations and balance sheet are included in our Consolidated financial statements from the closing date.
Effective in Q3-2021, the operating DPW and underwriting income of RSA’s Canadian and UK&I operations are reported in their
respective segments. The new UK&I segment includes RSA’s operations in the UK, Ireland, Europe and the Middle East. See Section
7 – UK&I for more details.
•
Abbreviations and definitions of selected key terms used in this MD&A are defined in Section 42 – Glossary and definitions.
• Other insurance-related terms are defined in Section 42 – Glossary and definitions of our MD&A, as well as in the glossary available
in the “Investors” section of our web site at www.intactfc.com.
• Certain totals, subtotals and percentages may not agree due to rounding. Not meaningful (nm) is used to indicate that the current
and prior year figures are not comparable, not meaningful, or if the percentage change exceeds 1,000%.
Non-GAAP and other financial measures
We use both GAAP measures (“reported”), as well as non-GAAP financial measures and ratios to assess our performance. Non-GAAP financial
measures and Non-GAAP financial ratios (which are calculated using non-GAAP measures) do not have standardized meanings prescribed
by IFRS and may not be comparable to similar measures used by other companies in our industry.
The Non-GAAP financial measures included in the MD&A and other financial reports are: operating DPW, operating NPW, operating NEP,
operating net claims, operating net underwriting expenses, underwriting income, distribution income, total finance costs, other operating income
(expense), operating and total income tax expense (benefit), PTOI, NOI, NOI attributable to common shareholders, pre-tax income, non-
operating results, adjusted net income, adjusted average common shareholder’s equity, adjusted average common shareholder’s equity
(excluding AOCI), debt outstanding (excluding hybrid debt), debt outstanding and preferred shares (including NCI) and adjusted total capital.
The Non-GAAP ratios included in the MD&A and other financial reports (other than Consolidated financial statements) are:
•
•
•
operating growth and operating growth in constant currency (for both operating DPW and NPW);
operating NEP growth and operating NEP growth in constant currency;
operating combined ratio, claims ratio (including underlying current year loss ratio, CAT loss ratio and PYD ratio) and expense ratio
(including commissions ratio, general expenses ratio and premium taxes ratio);
operating and total effective income tax rates;
•
• NOIPS and AEPS, as well as ROE, OROE and AROE;
•
book value per share (BVPS) excluding AOCI; and
•
adjusted debt-to-total capital ratio and total leverage ratio.
We believe that similar measures and ratios are widely used in the industry and provide investors, financial analysts, rating agencies and other
stakeholders with a better understanding of our business activity and financial results over time, in line with how management analyse
performance. Non-GAAP and other financial measures used by management are fully defined and reconciled to the corresponding GAAP
measures. We also use other financial measures to assess our performance, including supplementary financial measures and segment
measures, which are further presented in the MD&A.
See Section 38 – Non-GAAP and other financial measures for the definition and reconciliation to the most comparable GAAP measures (or
“reported measures”).
2 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Cautionary note regarding forward-looking statements
Certain of the statements included in this MD&A about the Company’s current and future plans, expectations and intentions, results,
levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking
statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”,
“believes”, “estimates”, “predicts”, “likely”, “potential” or the negative or other variations of these words or other similar or comparable
words or phrases, are intended to identify forward-looking statements. Unless otherwise indicated, all forward-looking statements in
this MD&A are made as at December 31, 2021, and are subject to change after that date. This MD&A contains forward-looking
statements with respect to the acquisition (the “RSA Acquisition”) and integration of RSA Insurance Group PLC (“RSA”) and the sale
(the “Sale”) of Codan Forsikring A/S’s Danish business (“Codan DK”) to Alm. Brand A/S group (“Alm.Brand”), the separation and
transfer of the businesses in Sweden and Norway from Codan DK (the "Separation"), the receipt of all requisite approvals or
clearances of the Separation and the Sale in a timely manner and on terms acceptable to the Company, the realization of the
expected strategic, financial and other benefits of the Sale and with respect to the impact of COVID-19 and related economic
conditions on the Company’s operations and financial performance.
Forward-looking statements are based on estimates and assumptions made by management based on management’s experience
and perception of historical trends, current conditions and expected future developments, as well as other factors that management
believes are appropriate in the circumstances. In addition to other estimates and assumptions which may be identified herein,
estimates and assumptions have been made regarding, among other things, the realization of the expected strategic, financial and
other benefits of the RSA Acquisition, the Separation and the Sale, and economic and political environments and industry conditions.
However, the completion of the Sale is subject to customary closing conditions, termination rights and other risks and uncertainties,
including, without limitation, the Separation, regulatory approvals and clearances, and there can be no assurance that the Sale will
be completed in a timely manner, or at all. There can also be no assurance that the strategic and financial benefits expected to result
from the RSA Acquisition, the Separation or the Sale, will be realized. Many factors could cause the Company’s actual results,
performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-
looking statements, including, without limitation, the following factors:
• expected regulatory processes and outcomes in connection with
its business;
• government regulations designed to protect policyholders and
•
creditors rather than investors;
the occurrence and frequency of catastrophe events, including a
major earthquake;
• catastrophe losses caused by severe weather and other weather-
•
•
•
related losses, as well as the impact of climate change;
intense competition and disruption;
•
• unfavourable capital market developments or other factors,
including the impact of the COVID-19 pandemic and related
economic conditions, which may affect
the Company’s
investments, floating rate securities and funding obligations under
its pension plans;
the Company’s ability to implement its strategy or operate its
business as management currently expects;
its ability to accurately assess the risks associated with the
insurance policies that the Company writes;
the Company’s ability to otherwise complete the integration of the
business acquired within anticipated time periods and at expected
cost levels, as well as its ability to operate in new jurisdictions
relating to the RSA Acquisition;
the Company’s ability to achieve synergies arising from
successful integration plans relating to acquisitions;
the Company’s reliance on information technology and
telecommunications systems and potential failure of or disruption
to those systems, including in the context of the impact on the
ability of our workforce to perform necessary business functions
remotely, as well as in the context of evolving cybersecurity risk;
the impact of developments in technology and use of data on the
Company’s products and distribution;
•
•
•
•
•
•
•
• COVID-19 related coverage issues and claims, including certain
class actions and related defence costs, could negatively
impact our claims reserves;
terrorist attacks and ensuing events;
the Company’s ability to maintain its financial strength and
issuer credit ratings;
the Company’s access to debt and equity financing;
the Company's ability to compete for large commercial
business;
the Company’s ability to alleviate risk through reinsurance;
the Company’s ability to successfully manage credit risk
(including credit risk related to the financial health of reinsurers);
the Company’s dependence on and ability to retain key
employees;
the cyclical nature of the P&C insurance industry;
•
• management’s ability to accurately predict future claims
•
•
•
•
frequency and severity,
the Company’s ability to successfully pursue its acquisition
strategy;
the Company’s ability to execute its business strategy;
•
• management’s estimates and expectations in relation to future
economic and business conditions and other factors in relation
to the Separation, the Sale and resulting impact on growth and
accretion in various financial metrics;
•
• unfavourable capital markets developments or other factors that
may adversely affect Alm.Brand’s ability to complete the Sale;
the Company’s ability to improve its combined ratio, retain
existing and attract new business, attract and retain key
employees with the in-depth knowledge and necessary skills,
maintain market position arising from successful integration
plans relating to the RSA Acquisition, as well as management's
INTACT FINANCIAL CORPORATION 3
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
the Company’s ability to contain fraud and/or abuse;
•
• periodic negative publicity regarding the insurance industry;
•
the Company’s reliance on brokers and third parties to sell its
products to clients and provide services to the Company and the
impact of COVID-19 and related economic conditions on such
brokers and third parties;
the occurrence of and response to public health crises including
epidemics, pandemics or outbreaks of new infectious diseases,
including, most recently, the COVID-19 pandemic and ensuing
events;
the volatility of the stock market and other factors affecting the
trading prices of the Company’s securities, including in the
context of the COVID-19 crisis;
litigation and regulatory actions, including with respect to the
COVID-19 pandemic;
•
•
•
• changes in laws or regulations, including those adopted in
response to COVID-19 that would, for example, require insurers
to cover business interruption claims irrespective of terms after
policies have been issued, and could result in an unexpected
increase in the number of claims and have a material adverse
impact on the Company's results;
estimates and expectations in relation to future economic and
business conditions and other factors in relation to the RSA
Acquisition and resulting impact on growth and accretion in
various financial metrics;
the Company’s participation in the Facility Association (a
mandatory pooling arrangement among all
industry
participants) and similar mandated risk-sharing pools;
•
• general economic, financial and political conditions;
•
the Company’s dependence on the results of operations of its
subsidiaries and the ability of the Company’s subsidiaries to pay
dividends;
the Company’s ability to hedge exposures to fluctuations in
foreign exchange rates;
future sales of a substantial number of its common shares;
the Company’s ability to meet its net zero carbon emission
targets; and
•
•
•
• changes in applicable tax laws, tax treaties or tax regulations or
the interpretation or enforcement thereof.
All of the forward-looking statements included in this MD&A and the quarterly earnings press release dated February 8, 2022 are
qualified by these cautionary statements and those made in the section entitled Risk management (Sections 30-35) of this MD&A
for the year ended December 31, 2021 and the Company’s Annual Information Form for the year ended December 31, 2021. These
factors are not intended to represent a complete list of the factors that could affect the Company. These factors should, however, be
considered carefully. Although the forward-looking statements are based upon what management believes to be reasonable
assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements.
When relying on forward- looking statements to make decisions, investors should ensure the preceding information is carefully
considered. Undue reliance should not be placed on forward-looking statements made herein. The Company and management have
no intention and undertake no obligation to update or revise any forward -looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
4 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 1 - About Intact Financial Corporation
1.1 Our purpose, values and core belief
Our purpose – We are here to help people, businesses and society prosper in good times and be resilient in bad times.
Our values guide us – Our values guide our decision-making, keep us grounded, help us outperform and are key to our success.
People are at the heart of our organization, and of our success – How we do things is just as important as what we achieve.
We are a purpose-driven company based on values and a belief that insurance is about people, not things.
1.2 What defines us
• A global team of more than 26,000 employees putting our collective strengths to work – supporting customers and brokers and
delivering on the key strategies and best in class operations that are essential to the success of Intact Financial Corporation.
•
•
Largest provider of P&C insurance in Canada, a leading specialty lines insurer with international expertise and a leader in personal
and commercial lines in the UK and Ireland. Our business has grown organically and through acquisitions to over $20 billion of
total annual premiums.
In Canada, we distribute insurance under the Intact Insurance and RSA brands through a wide network of brokers, including our
wholly-owned subsidiary BrokerLink, and directly to consumers through belairdirect. We also provide affinity insurance solutions
through the Johnson Affinity Groups. In the US, Intact Insurance Specialty Solutions provides a range of specialty insurance
products and services through independent agencies, regional and national brokers, and wholesalers and managing general
agencies. Across the UK, Ireland, Europe and the Middle East, we provide personal, commercial and specialty insurance solutions
through the RSA brands.
2021 Operating DPW (pro forma)1
by business segment
1
2021 Operating DPW (pro forma)
by type
1
2021 Operating DPW (pro forma)
by distribution channel
25%
10%
$20.8B
65%
23%
23%
$20.8B
54%
24%
$20.8B
76%
1 Operating DPW (proforma) include the impact of the RSA Acquisition for a full year, which is a better indication of our annual premiums. There is no equivalent GAAP
measure.
INTACT FINANCIAL CORPORATION
5
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 2 - Segments and lines of business
Following the RSA Acquisition on June 1, 2021, we now report our financial results under the three business segments and lines of
business set out below. The composition of our segments is aligned with our internal financial reporting based on management structure
and geography.
Reportable business segments
Canada (CAN)
Segment
Underwriting and distribution
activities in Canada.
Three lines of business:
Personal auto
Personal property
Commercial lines
UK and International
(UK&I)
Underwriting activities in
the UK, Ireland, Europe
and the Middle East.
Two lines of business:
Personal lines
Commercial lines
US
Segment
Underwriting activities in
the US.
One line of business:
Commercial lines
Group reinsurance, Corporate and
Other (Corporate)
Activities managed centrally, including
investing related to P&C insurance,
reinsurance, treasury and capital
management.
Corporate also includes RSA’s Canadian
and UK&I underwriting results for the
month of June 2021
Intact Financial Corporation
Personal auto – CANADA
We provide various levels of coverage to our customers for their vehicles, including accident benefits, third party
property and physical damage. Our coverage is also available for motor homes, recreational vehicles, motorcycles,
snowmobiles and all terrain vehicles.
Personal property – CANADA
We provide various levels of protection to our customers for their homes and contents from risks such as fire, theft,
vandalism, water damage and other damages, as well as personal liability coverage. Property coverage is also
available for tenants, condominium owners, non-owner-occupied residences and seasonal residences.
Commercial lines (including specialty lines) – CANADA
We provide a broad range of coverages tailored to the needs of a diversified group of small to medium-sized
businesses. Commercial property coverages protect the physical assets of a business. Liability coverages include
commercial general liability, product liability, professional liability, as well as cyber endorsement. Commercial vehicle
coverages provide protection for commercial auto, fleets, garage operations, light trucks, public vehicles and the
specific needs of the sharing economy.
Personal lines – UK&I
We provide various levels of coverage to our customers for their home, motor, pet and other insurance products in
the UK, Ireland and the Middle East.
Commercial lines (including specialty lines) – UK&I
We provide a broad range of general insurance, specialty lines and risk management expertise for businesses and
other organisations in the UK, Ireland, the Middle East, France, Belgium, Spain and the Netherlands.
Commercial lines (specialty lines) – US
We provide a broad range of specialty insurance solutions tailored to meet the unique needs of specific industry
segments or product/customer groups. Businesses serving targeted industry segments include accident and health,
technology, ocean marine, inland marine, public entities, entertainment, financial services, and financial institutions.
Businesses offering distinct specialty products to broad customer groups include specialty property, surety, tuition
reimbursement, management liability, cyber and environmental.
Specialty lines
Specialty lines are embedded in the commercial operations of each segment. Specialty is about focus and deep knowledge of
a unique customer segment (such as marine, technology, entertainment and public entities) or product niche (such as surety, excess
property, multi-national programs, management liability and cyber). With the RSA Acquisition, we have strengthened our leading
North American specialty lines platform, introduced new specialized verticals in Canada, and with a broader distribution footprint,
provided existing specialty franchises access to new regions and expanded support for multinational customers.
6 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 3 - Building sustainable competitive advantages
We have many unique advantages which have enabled us to consistently outperform P&C insurers in the markets where we operate.
These competitive advantages, which we will continue to strengthen and leverage, are described below.
Building a leading P&C Insurer
• Our multi-channel distribution strategy includes the most recognized broker and direct-to-consumer brands
in Canada. Full advice-based support is provided through our broker channels and simplified, online
convenience is available through belairdirect.
Scale in
distribution
• We have broker relationships across Canada, US, UK and Europe for customers who value advice, and the
specialized and community-based services that only an insurance broker can provide.
• We provide our brokers with a variety of digital distribution service platforms, alongside sales training and
financing to enable them to continue to grow and develop their businesses.
Leading
digital
engagement
Best
Employer
Diversified
business
mix
Global leader in
leveraging
data and AI for
pricing and
risk selection
Deep claims
expertise and
strong supply
chain network
Strong capital
and
investment
management expertise
Proven
consolidator
& integrator
• Our industry leading mobile and fully integrated digital solutions distinguish us from our peers. Our ability to
design, deliver and iterate on new experiences for brokers and customers makes us a preferred company
to deal with. Speed, simplicity and transparency are core tenets of our customer driven digital focus.
• Our people are the cornerstone to execution of our strategy. As a Best Employer, we attract, retain and
engage some of the best talent both within and outside our industry. We have highly engaged employees
and our strong set of Values and Leadership Success Factors guide decision making and provide a strong
moral compass.
• Our underwriting business is well diversified across segments (with presence in Canada, the US, the UK
and Europe) and lines of business (personal, commercial and specialty).
• Our growing stream of distribution income, as well as our investment income, provides earnings
diversification and reduces volatility.
• Our AI and machine learning expertise combined with our data advantage allows us to create sophisticated
algorithms that price for risk more accurately than the market.
•
In turn this establishes a model that will both attract and retain customers with profitable profiles.
•
The majority of our claims are handled in house with the support of our preferred network of suppliers.
• We have invested directly in our auto and property supply chain to strengthen our network, This provides
an opportunity for simpler, faster and superior experience for the customer and translates into a competitive
advantage, as we can settle claims at a lower cost.
•
In-house investment management provides greater flexibility in support of our insurance operations at a
competitive cost. In establishing our asset allocation, we consider a variety of factors including prospective
risk and return of various asset classes, the duration of claim obligations, the risk of underwriting activities
and the capital supporting our business.
• Our primary investment objective is to maximize after-tax returns, while preserving capital and limiting
volatility. We achieve this through an appropriate asset allocation and active management of investment
strategies.
Acquisitions play an important role in accelerating execution of the strategy.
•
• We are a proven industry consolidator with 18 successful acquisitions since 1988, including the RSA
Acquisition, which has expanded our leadership position in Canada and advanced our objective to build a
global specialty solutions leader in Canada, the US, the UK and Europe.
• Our successful track record on acquisitions is driven by three key factors: thorough due diligence to assess
all the risks and opportunities; swift and effective integration that is seamless to our customers; and financial
benefit from significant synergies due to our scale and core expertise in data, pricing and segmentation,
and claims and supply chain management.
INTACT FINANCIAL CORPORATION 7
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
PERFORMANCE
Section 4 - Consolidated performance
4.1 Consolidated highlights
Q4-2021 Highlights
• NOIPS1 of $3.78 for Q4-2021 and $12.41 for 2021 increased by 19% and 25%, respectively, driven by robust
underwriting and distribution income, and meaningful accretion from RSA
• EPS growth of 51% for Q4-2021 and 72% for 2021, reflecting strong operating results and investment gains
• Operating DPW grew 75% for the quarter and 45% for 2021, mainly from RSA, with healthy organic growth in
1
commercial lines
• Operating combined ratio of 87.8% for Q4-2021, as strong underlying performance outweighed elevated CAT losses
• OROE of 17.8% and ROE of 17.0%, with BVPS growth of 40% to $82.34
• Quarterly dividend increased by 10% to $1.00 per common share and initiating share buyback program
1
1
Table 1 - Consolidated performance 1
Operating DPW1 (growth in constant currency)
Direct premium written (reported DPW growth)
Operating NEP1
Net earned premiums
Operating income
Underwriting income1
Net investment income
Distribution income1
Total finance costs1
Other operating income (expense)1
Pre-tax operating income (PTOI)1
NOI attributable to common shareholders1,2
Net income
Claims ratio 1
Expense ratio 1
Operating combined ratio1
Section
4.2
4.2
10.1
6.5
4.2
5.1
4.2
Per share measures, basic and diluted (in dollars)
NOIPS1 4.2
4.2
EPS
BVPS1
28.7
Return on equity for the last 12 months
OROE1
AROE1
ROE1
Total capital margin
Adjusted debt-to-total capital ratio 1
4.2
4.2
28.2
28.2
Q4-2021 Q4-2020
5,017
5,318
4,931
5,003
600
220
77
(43)
4
858
666
701
56.2%
31.6%
87.8%
3.78
3.85
82.34
17.8%
21.0%
17.0%
2,891
23.0%
2,872
2,928
2,879
2,899
415
143
72
(32)
2
600
454
378
55.1%
30.5%
85.6%
3.18
2.55
58.79
18.4%
15.0%
12.8%
2,729
24.1%
Change
2021
75% 17,283
82% 17,994
2020 Change
45%
48%
12,039
12,143
71% 16,043
73% 16,238
11,220
11,241
45%
54%
7%
nm
100%
43%
47%
85%
1,787
706
362
(162)
(25)
2,668
2,017
2,088
1,227
577
275
(126)
(37)
1,916
1,419
1,082
43%
44%
46%
22%
32%
nm
nm
39%
42%
93%
1.1 pts
1.1 pts
55.9%
32.9%
57.8%
31.3%
(1.9) pts
1.6 pts
2.2 pts
88.8%
89.1%
(0.3) pts
12.41
12.40
9.92
7.20
25%
72%
19%
51%
40%
(0.6) pts
6.0 pts
4.2 pts
162
(1.1) pts
1 See Section 38 – Non-GAAP and other financial measures for the definition and reconciliation to the most comparable GAAP measures.
2 Net of preferred share dividends and net income attributable to non-controlling interests. See table 4 5 for more details.
8 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
4.2 Consolidated performance
Effective July 1, 2021, RSA’s underwriting results are reported as part of the Canada and UK&I segments. The operating DPW and
underwriting income of RSA’s Canadian and UK&I operations for the month of June 2021 are included in Corporate and Other.
Table 2 – Consolidated underwriting performance
Section Q4-2021
Q4-2020
Change
2021
2020
Change
Operating DPW (growth in constant currency)
Canada
UK&I
US
Corporate (RSA for June 2021)
IFC
Operating combined ratio
Canada
UK&I
US
Corporate (RSA for June 2021)
IFC
6.1
7.1
8.1
6.1
7.1
8.1
3,283
1,274
460
n/a
5,017
84.4%
93.0%
92.5%
n/a
87.8%
2,471
n/a
401
n/a
2,872
84.0%
n/a
92.0%
n/a
85.6%
33%
nm
19%
nm
75%
0.4 pts
nm
0.5 pts
nm
2.2 pts
12,023
2,538
1,988
734
17,283
86.7%
93.4%
92.9%
90.7%
88.8%
10,216
n/a
1,823
n/a
12,039
88.0%
n/a
94.9%
n/a
89.1%
18%
nm
17%
nm
45%
(1.3) pts
nm
(2.0) pts
nm
(0.3) pts
Operating DPW
growth (in
constant
currency)
(Sections 6-8)
Underwriting
performance
(Sections 6-8)
Net investment
income
(Section 10.1)
Distribution
income
(Section 6.5)
Total finance
costs
NOIPS
Q4-2021 vs Q4-2020
2021 vs 2020
• On a constant currency basis, overall
premium growth of 75%, bolstered by the RSA
Acquisition, which contributed 69 points.
• On a constant currency basis, overall premium
growth of 45%, bolstered by the RSA Acquisition,
which contributed 40 points.
• Excluding this impact, premium growth was 6% for Q4-2021 and 5% for 2021 on a constant currency
basis, driven by solid growth in commercial lines across all segments.
• Overall operating combined ratio was solid at
87.8%, with strength across all segments, despite
3.8 points ($186 million) of CAT losses, well above
expectations for the fourth quarter.
• Net investment income increased by 54% to
$220 million, driven by
the growth in our
investment portfolio following the RSA Acquisition
and including a special dividend of $23 million
from one of our investments.
losses,
• Overall operating combined ratio was strong at
88.8%, after absorbing $676 million (4.2 points) of
CAT
reflecting strong underlying
performance across all lines and favourable PYD.
• Net investment income increased by 22% to
$706 million, mainly driven by the growth in our
investment portfolio following the RSA Acquisition.
• Distribution income grew by 7% compared to
a strong Q4-2020, driven by the impact of
accretive acquisitions.
• Distribution income grew by 32%, driven by
higher variable commission revenues, as well as
accretive acquisitions.
• Total finance costs of $43 million for Q4-2021 and $162 million for 2021 were higher than last year, due
to the impact of the RSA Acquisition.
• NOIPS of $3.78 improved by 19% compared to
a very strong Q4-2020, driven by meaningful
accretion from RSA, as well as robust underwriting
and
investment income. See Section 21.2 –
Integration and transition of more details on RSA
NOIPS accretion.
• NOIPS increased by 25% to $12.41, driven by
continued strong underwriting and distribution
performances, and the addition of RSA.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Non-operating
results
(Section 37)
See Section
10.3 for more
details on
investment
gains and
losses
excluding
FVTPL bonds
Effective
income tax
rates 1
(Section 11.2)
EPS
Q4-2021 vs Q4-2020
• Non-operating gains of $17 million
investment gains excluding
reflected
FVTPL bonds ($262 million), partly offset
by net adverse development cover (“ADC”)
cost for UK&I
($71 million) and RSA
integration costs ($35 million).
2021 vs 2020
Non-operating losses of $70 million included:
•
Integration costs of $285 million, including those related to
the RSA Acquisition ($167 million) and net ADC cost for
UK&I ($71 million);
• RSA acquisition costs ($90 million);
•
•
investment gains excluding FVTPL bonds ($516 million);
a purchase price gain
the RSA Acquisition
($204 million), which was mostly offset by amortization of
intangible assets recognized in business combinations; and
• Other non- operating losses totalling $216 million, including
lines, non- operating pension expense, and
from
exited
restructuring and other costs.
• Operating effective income tax rate of
19.8% for Q4-2021 reflected approximately
3 points of tax benefit recognized for
previously unrecognized losses in the UK.
• Total effective income tax rate of 20.1%
reflected the previously-
for Q4-2021,
mentioned UK tax benefit (2 points).
• EPS increased by 51% to $3.85, mainly
driven by strong operating results and net
investment gains from favourable equity
markets, partly offset by net ADC cost for
UK&I.
• Operating effective income tax rate of 21.6% was broadly
in line with expectations.
• Total effective income tax rate of 19.6% for 2021 was
lower than 2020, mostly due to the non- taxable purchase
price gain of $204 million on the RSA Acquisition.
• EPS increased 72% to $12.40, mainly driven by strong
operating results and the purchase price gain on the RSA
Acquisition, partly offset by RSA acquisition and integration
costs, and net ADC cost for UK&I.
Return on
equity for the
last 12 months
•
•
Strong operating ROE of 17.8%, driven by strong operating performance. We expect OROE to be at a mid-
teens level in the medium term.
Strong ROE of 17.0%, a sharp increase versus 12.8% last year, reflecting a strong operating performance
and favourable non- operating results.
BVPS
(Section 28.7)
Adjusted debt-
to-total capital
ratio
(Section 28.2)
• BVPS increased sequentially by 4% to
• BVPS increased by 40% year-over-year, driven by strong
$82.34, driven by strong earnings.
earnings and the RSA financing.
• Our adjusted debt-to-total capital ratio decreased to 23.0% as at December 31, 2021. Given the
anticipated proceeds from the sale of Codan Denmark, we expect the adjusted debt-to-total-capital ratio to
return to 20% ahead of our objective.
• We ended the year in a strong financial position, with $2.9 billion of total capital margin and solid
Financial
condition
(Section 28.2)
1 See Note 27.2 – Effective income tax rate to the Consolidated financial statements for more details.
regulated capital ratios in all jurisdictions.
OROE and ROE performance over time
ROE OROE
%
8
.
6
1
%
5
.
3
1
%
2
.
1
1
%
3
.
9
%
1
.
6
1
%
3
.
6
1
%
6
.
6
1
%
4
.
3
1
%
0
.
2
1
%
6
.
9
%
8
.
2
1
%
9
.
2
1
%
1
.
2
1
%
9
.
9
%
5
.
2
1
%
0
.
0
1
%
8
.
7
1
%
0
.
7
1
%
4
.
8
1
%
8
.
2
1
Average (2012-21):
ROE: 12.4%
OROE: 14.7%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
10 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 5 - Segment performance
5.1 Operating performance by segment
The operating DPW and underwriting income of RSA’s Canadian and UK&I operations for June 2021 was reported in Corporate (RSA).
Table 3 – Operating performance by segment 1
For the quarters ended December 31,
CAN
UK&I
US
Corporate
RSA Other
2021
Total
CAN
2020
Total
US Corp.
3,283
33%
1,274
n/a
460
19%
-
n/a
5,017
75%
2,471
6%
401
19%
-
n/a
2,872
8%
Operating DPW
Growth in constant currency
Operating income
Operating NEP
2
Operating net claims
Operating net UW expenses2
Underwriting income
Net investment income
Distribution income
Total finance costs
Other operating income
(expense)3
PTOI
For the years ended December 31,
3,296
1,774
1,009
513
1,145
682
383
80
-
77
(1)
-
589
-
-
-
-
485
285
164
36
-
-
-
-
80
36
-
-
-
-
-
-
-
-
-
-
5
32
2
(29)
220
-
(42)
4
153
CAN
UK&I
US Corporate
RSA Other
4,931
2,773
1,558
600
220
77
(43)
4
858
2021
Total
2,446
1,332
722
392
-
72
(3)
-
461
432
240
157
35
-
-
-
-
1
13
-
(12)
143
-
(29)
2
35
104
2,879
1,585
879
415
143
72
(32)
2
600
2020
CAN
US Corp.
Total
Operating DPW
Growth in constant currency
12,023
18%
2,538
n/a
1,988
17%
734
n/a
-
n/a
17,283
45%
10,216
9%
1,823
9%
-
n/a
12,039
9%
Operating income
Operating NEP
Operating net claims2
Operating net UW expenses2
Underwriting income
Net investment income
Distribution income
Total finance costs
Other operating income
(expense)3
11,450
6,259
3,666
1,525
2,319
1,381
786
152
1,652
910
625
117
608
351
200
57
-
362
(9)
-
-
-
-
-
-
-
-
-
-
-
-
-
PTOI
1,878
152
117
57
14
72
6
(64)
706
-
(153)
16,043
8,973
5,283
1,787
706
362
(162)
(25)
464
(25)
2,668
9,633
5,571
2,908
1,154
-
275
(11)
-
1,582
893
608
81
-
-
-
-
1,418
81
5
13
-
(8)
577
-
(115)
11,220
6,477
3,516
1,227
577
275
(126)
(37)
417
(37)
1,916
1 The totals of the segment measures reconcile to Table 1 – Consolidated performance.
2 See Section 38 – Non-GAAP and other financial measures for the definition and reconciliation to the most comparable GAAP measures
3 Other operating income (expense) can fluctuate from quarter to quarter and includes general corporate expenses related to the operation of the group
and our public company status, consolidation adjustments, and other operating items.
INTACT FINANCIAL CORPORATION 11
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 6 - Canada segment (P&C Canada and Distribution)
Canada segment
UNDERWRITING ACTIVITIES IN CANADA (see Section 6.1 – P&C Canada)
• With the RSA Acquisition, we have expanded our position in Canada, with more than $13 billion in annual o perating DPW on a
pro-forma basis1 and an approximate market share of 21%.
• We underwrite automobile, home and business insurance contracts to individuals and businesses in Canada, which are
reported under three lines of business: personal auto, personal property and commercial lines (including specialty lines).
• We offer our products through multiple distribution channels including brokers, direct to consumer and managing general
agent (MGA) platform.
•
•
•
Intact Insurance branded products are sold through a wide network of brokers, including our wholly -owned subsidiary
BrokerLink.
The belairdirect and RSA’s leading brand Johnson are direct to consumer brands.
Intact Public Entities is the MGA platform for distributing public entity insurance products in Canada. Coast
Underwriters, added as part of the RSA Acquisition, is our new MGA specialized in Marine Insurance.
• We also provide white label capability to select financial institutions.
DISTRIBUTION AND OTHER ACTIVITIES IN CANADA (see Section 6.5 – Distribution income)
2021 Operating DPW (proforma) 1
by line of business
2021 Operating DPW (proforma) 1
by region
2021 Operating DPW (proforma) 1
by distribution channel
PA
PP
CL
Ontario Québec
Alberta Other
40%
26%
34%
39%
27%
16%
18%
Brokers and MGAs
Direct to consumers
79%
21%
PA: Personal auto; PP: Personal property: CL: Commercial lines
Operating DPW (proforma) include the impact of the RSA Acquisition for a full year, which is a better indication of our annual premiums.
12 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
6.1 P&C Canada
Underwriting results for P&C Canada reflect two full quarters of RSA Canada’s results following the close
of the acquisition on June 1, 2021. The operating DPW and underwriting income of RSA Canada for the
month of June 2021 are included in Corporate and Other.
Table 4 – Underwriting results for P&C Canada 1
Operating DPW
Personal auto
Personal property
Commercial lines
Operating NEP
Underwriting income
Underwriting ratios
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Commissions1
General expenses1
Premium taxes1
Expense ratio
Operating combined ratio
Personal auto
Personal property
Commercial lines
Section
6.2
6.3
6.4
Q4-2021 Q4-2020
2,471
984
623
864
3,283
1,234
831
1,218
3,296
513
2,446
392
Change
33%
25%
33%
41%
35%
31%
54.6%
3.2%
(4.0)%
53.8%
16.6%
10.1%
3.9%
30.6%
84.4%
87.5%
79.5%
84.3%
53.2%
2.7%
(1.4)%
1.4 pts
0.5 pts
(2.6) pts
54.5%
(0.7) pts
16.0%
10.2%
3.3%
0.6 pts
(0.1) pts
0.6 pts
29.5%
1.1 pts
84.0%
0.4 pts
82.6%
73.2%
95.3%
4.9 pts
6.3 pts
(11.0) pts
6.2
6.3
6.4
2021
12,023
4,843
3,104
4,076
11,450
1,525
55.8%
3.3%
(4.4)%
54.7%
18.2%
10.0%
3.8%
32.0%
86.7%
86.9%
83.8%
88.6%
2020
10,216
4,322
2,586
3,308
9,633
1,154
Change
18%
12%
20%
23%
19%
32%
55.6%
3.1%
(0.9)%
0.2 pts
0.2 pts
(3.5) pts
57.8%
(3.1) pts
16.5%
10.1%
3.6%
1.7 pts
(0.1) pts
0.2 pts
30.2%
1.8 pts
88.0%
(1.3) pts
86.6%
81.7%
95.1%
0.3 pts
2.1 pts
(6.5) pts
1 See Section 38 – Non-GAAP and other financial measures.
Q4-2021 vs Q4-2020
2021 vs 2020
• Premium growth of 33% for Q4-2021 and 18% for 2021 was bolstered by the RSA Acquisition, and reflected six months of
premiums for 2021. Excluding this impact, operating DPW growth was 5% for Q4-2021 and 4% for 2021. Premium growth
reflected continued strength in personal property and commercial lines, while personal auto continued to be muted.
• Expense ratio
increased
to 30.6%, driven by higher variable
commissions due to underwriting profitability, while premium taxes were
higher compared to a low level in Q4-2020. All lines have seen similar
trends, although the impact from variable commissions may vary based
on their share of profitability.
• Expense ratio increased to 32.0%, driven by
higher variable commissions and technology
spend, partly offset by expense synergies and
favourable mix due to the RSA Acquisition.
• Operating combined ratio of 84.4% reflected continued strength across
all lines. Performance was very strong, driven by our profitability actions
over time, despite elevated property CAT losses. While we continue to
observe a gradual increase in driving activity, it remains below the pre-
pandemic levels.
• Very strong operating combined ratio of
86.7%, with all lines delivering a sub-90s
combined ratio, driven by continued strong
underlying performance and favourable PYD.
See Section 15 – Prior year claims development and Section 16 – CAT losses and weather conditions for more details.
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
6.2 Personal auto
Table 5 – Underwriting results for personal auto 1
Operating DPW
Written insured risks (in thousands)
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Operating combined ratio
1 See Section 38 – Non-GAAP and other financial measures.
Q4-2021 Q4-2020
Change
1,234
1,109
1,390
174
66.5%
0.4%
(3.9)%
63.0%
24.5%
87.5%
984
908
1,087
189
58.8%
0.6%
(1.0)%
58.4%
24.2%
82.6%
25%
22%
28%
(8)%
7.7 pts
(0.2) pts
(2.9) pts
4.6 pts
0.3 pts
4.9 pts
2021
4,843
4,694
4,825
632
64.4%
0.5%
(3.9)%
61.0%
25.9%
86.9%
2020
Change
4,322
4,246
4,187
560
61.0%
1.1%
(0.1)%
62.0%
24.6%
12%
11%
15%
13%
3.4 pts
(0.6) pts
(3.8) pts
(1.0) pts
1.3 pts
86.6%
0.3 pts
•
Q4-2021 vs Q4-2020
Premium growth of 25%, driven by the RSA Acquisition. We
continue to operate in a muted rate environment, with strong
retention levels and modest unit growth. We remain cautious in our
rating strategy as we monitor trends in driving activity and claims
severity.
2021 vs 2020
• Premium growth of 12% was bolstered by the RSA
Acquisition. Excluding this impact, operating DPW
declined by 1% in a muted rate environment.
• Underlying current year loss ratio was strong at 66.5%, despite
higher driving activity compared to a particularly low level last year.
Claims severity remains under control.
• Underlying current year loss ratio remained
strong at 64.4%, with driving activity below the pre-
pandemic level throughout 2021.
• CAT loss ratio of 0.4% was essentially in line with expectations.
• CAT loss ratio of 0.5% was below expectations and
last year.
•
Favourable PYD was strong at 3.9% for Q4-2021 and 2021, reflecting reduced uncertainty around claims patterns during
the pandemic.
• Expense ratio variation to last year for the quarter and full year is consistent with trends at the Canada level (see Section 6.1
– P&C Canada).
• Very strong operating combined ratio of 87.5%, reflecting a
strong underlying performance and favourable PYD, with driving
activity remaining below the pre-pandemic level.
•
Very strong operating combined ratio of 86.9%,
driven by our profitability actions over time and lower
driving activity, net of customer premium relief
measures.
Operating DPW
Underlying current year loss ratio
Operating combined ratio
2019
2020
2021
3
4
8
,
4
2
2
3
,
4
7
6
0
,
4
4
3
2
,
1
1
4
9
4
8
9
Q4
Full year
14 INTACT FINANCIAL CORPORATION
%
0
.
3
7
%
5
.
6
6
%
8
.
8
5
Q4
%
7
.
1
7
%
4
.
4
6
%
0
.
1
6
Full year
%
5
.
6
9
%
5
.
7
8
%
6
.
2
8
Q4
%
7
.
7
9
%
6
.
6
8
%
9
.
6
8
Full year
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
6.3 Personal property
Table 6 – Underwriting results for Personal property 1
Operating DPW
Written insured risks (in thousands)
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Operating combined ratio
1 See Section 38 – Non-GAAP and other financial measures.
Q4-2021 Q4-2020
Change
831
730
838
171
41.3%
6.8%
(1.0)%
47.1%
32.4%
79.5%
623
579
630
169
40.3%
2.4%
(2.4)%
40.3%
32.9%
73.2%
33%
26%
33%
1%
1.0 pts
4.4 pts
1.4 pts
6.8 pts
(0.5) pts
6.3 pts
2021
3,104
2,833
2,924
472
45.7%
7.1%
(3.4)%
49.4%
34.4%
83.8%
2020
Change
2,586
2,480
2,444
446
46.5%
3.8%
(1.9)%
48.4%
33.3%
81.7%
20%
14%
20%
6%
(0.8) pts
3.3 pts
(1.5) pts
1.0 pts
1.1 pts
2.1 pts
Q4-2021 vs Q4-2020
2021 vs 2020
•
Premium growth of 33%, bolstered by
the RSA
Acquisition. Excluding this impact, operating DPW growth
was 5%, mainly driven by firm market conditions, with strong
retention levels.
• Underlying current year loss ratio of 41.3% remained
strong, reflecting the benefit of higher earned rates and
benign weather.
•
•
Premium growth of 20%, bolstered by
the RSA
Acquisition. Excluding this impact, operating DPW growth
was 5%, mainly driven by rate increases.
Strong underlying current year loss ratio improved to
45.7%, driven by higher earned rates and lower non-CAT
weather losses.
• CAT loss ratio of 6.8% was above last year and
expectations and reflected the impact of the BC floods and
Ontario and Québec windstorms (see Section 16.5 –
Weather conditions).
• CAT loss ratio of 7.1% was in line with expectations, with
most of the CAT activity in H2-2021, mainly due to the
impact of rain and hailstorms in Alberta, Ontario and
Atlantic Canada.
•
•
Favourable PYD ratio was healthy at 1.0%, while slightly
below historical average due to adverse development on
large losses.
•
Favourable PYD ratio of 3.4% was in line with historical
averages and higher than last year, mainly due to
favourable development on prior year CAT losses.
Expense ratio decreased slightly in the quarter and was up in 2021, consistent with trends at the Canada level (see Section
6.1 – P&C Canada).
• Operating combined ratio was very strong at 79.5%,
after absorbing 6.8 points of elevated CAT losses, driven by
our profitability actions over time and benign weather.
• Operating combined ratio was very strong at 83.8%,
driven by continued strength in underlying performance,
healthy favourable PYD and benign weather.
Operating DPW
4
0
1
,
3
6
8
5
,
2
7
3
3
,
2
6
6
5
3
2
6
1
3
8
Underlying current year loss ratio
2020
2021
2019
%
7
.
3
5
%
5
.
6
4
%
7
.
5
4
%
5
.
3
4
%
3
.
0
4
%
3
.
1
4
Q4
Full year
Q4
Full year
Operating combined ratio
%
5
.
2
9
%
8
.
3
8
%
7
.
1
8
Full year
%
5
.
9
7
%
0
.
2
8
%
2
.
3
7
Q4
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
6.4 Commercial lines
Table 7 – Underwriting results for Commercial lines Canada 1
Operating DPW
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Operating combined ratio
1 See Section 38 – Non-GAAP and other financial measures.
Q4-2021 Q4-2020
Change
1,218
1,068
168
49.5%
3.9%
(6.3)%
47.1%
37.2%
84.3%
864
729
34
41%
47%
394%
55.8%
6.0%
(1.0)%
(6.3) pts
(2.1) pts
(5.3) pts
60.8%
34.5%
(13.7) pts
2.7 pts
95.3%
(11.0) pts
2021
4,076
3,701
421
52.3%
4.0%
(5.7)%
50.6%
38.0%
88.6%
2020
Change
3,308
3,002
148
55.3%
5.5%
(1.1)%
59.7%
35.4%
23%
23%
184%
(3.0) pts
(1.5) pts
(4.6) pts
(9.1) pts
2.6 pts
95.1%
(6.5) pts
Q4-2021 vs Q4-2020
• Premium growth of 41% was bolstered by the RSA
Acquisition. Excluding this impact, operating DPW growth was
11%, reflecting hard market conditions and our focus on
profitable growth, compared to a lower premium base in 2020
due to relief provided.
2021 vs 2020
• Premium growth of 23% was bolstered by the RSA
Acquisition. Excluding this impact, operating DPW
growth was 9%, mainly reflecting hard market
conditions.
• Underlying current year loss ratio improved to a very strong 49.5% for Q4-2021 and 52.3% for 2021, driven by the benefit
of our higher earned rates and benign weather. The improvement also reflected the impact of customer relief measures on last
year’s performance.
• CAT loss ratio of 3.9% was driven by the BC floods and was
• CAT loss ratio of 4.0% was above expectations.
above expectations.
•
Favourable PYD ratio was strong at 6.3% for Q4-2021 and 5.7% for 2021, reflecting reduced uncertainty around claims
patterns during the pandemic and favourable development on CAT losses.
• Expense ratio variation to last year for the quarter and full year is consistent with trends at the Canada level (see Section 6.1
– P&C Canada).
• Operating combined ratio was very strong at 84.3% ,
improving by 11 points compared to last year, which was
impacted by 6 points from customer relief measures. Excluding
this impact, the improvement reflects a strong underlying
performance and favourable PYD.
• Operating combined ratio was strong at 88.6%,
mainly driven by the benefit of our profitability actions
over time. Strong favourable PYD partly offset elevated
CAT activity.
Operating DPW
6
7
0
,
4
8
0
3
,
3
5
9
9
,
2
1
2
8
4
6
8
8
1
2
,
1
Underlying current year loss ratio
2020
2021
2019
%
2
.
7
5
%
8
.
5
5
%
5
.
9
4
%
0
.
0
6
%
3
.
5
5
%
3
.
2
5
Operating combined ratio
%
3
.
5
9
%
5
.
3
9
%
3
.
4
8
%
0
.
6
9
%
1
.
5
9
%
6
.
8
8
Q4
Full year
Q4
Full year
Q4
Full year
16 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
6.5 Distribution Income
Distribution income
Distribution income is reported on a pre-tax and pre-interest basis and includes the operating results of our wholly-owned broker,
BrokerLink, as well as our share of operating results of broker affiliates, MGAs in Canada, On Side Restoration (“On Side”) and
Johnson Group Benefits.
• Our strategy is to increase scale in distribution and to be a preferred partner by supporting brokers in their growth and
profitability ambitions. We aim to continue to:
•
Support our brokers as they expand and grow their businesses, while actively participating in broker consolidation
through Intact Insurance Agencies, BrokerLink and partners.
o BrokerLink is a distributor of P&C products in Canada, with over $2.5 billion of written premiums. In 2021,
BrokerLink completed 21 acquisitions totalling $475 million in premiums.
o Broker Financial Solutions (“BFS”) offers financial support and advice to our network of brokers, in areas such
as succession planning, growth, and profitability improvement.
•
Expand our distribution footprint in specialty lines through the acquisition of MGAs.
o
Intact Public Entities is the MGA platform for distributing public entity insurance products in Canada.
o As part of the RSA Acquisition, we added Coast Underwriters, a MGA specialized in Marine Insurance.
• We will continue to seek investment opportunities in profitable supply chain businesses that can improve both customer
experience and margins.
• We own On Side, a Canadian restoration firm providing repair and restoration services for personal and commercial
property claims across Canada. It gives us greater control over the customer experience, being faster in our response
and ensuring the quality of the repair, while being more efficient on costs.
• Distribution income adds a strong and diversified earnings stream that supports our ROE objectives .
Distribution income by source
BrokerLink
BFS
Other
53%
37%
10%
1Other includes On Side, Coast Underwriters
and Johnson Group Benefits.
Distribution income grew by 32% to
$362 million, as expected, driven by higher
variable commission revenues, as well as
accretive acquisitions.
We expect distribution income to be above
$400 million in 2022.
Distribution income
2021
2020
2019
2
6
3
5
7
2
9
0
2
Full year
INTACT FINANCIAL CORPORATION 17
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 7 - UK and International (UK&I) segment
Underwriting activities in the UK, Ireland, Europe and the Middle East
INSURANCE: P&C UK&I (see Section 7.1 – P&C UK&I)
• We underwrite automobile, home, pet and business insurance to individuals and businesses in the UK, Ireland, Europe and
the Middle East, as well as internationally through our global network, with over £3 billion ($5 billion), using an exchange rate of
1.72431) in annual operating DPW. We distribute insurance through a wide network of affinity partners and brokers or directly
to consumers.
•
•
•
In the UK, we hold a top 5 position in both commercial lines and personal property. Personal auto, personal property and pet
insurance is offered to our customers through MORE THAN and affinity partners, which include major retailers and large banks.
Commercial lines in the UK are offered through the RSA brand via brokers or directly to consumers.
In Ireland, we hold a top 4 position overall, with over £334 million in annual operating DPW. Personal and commercial insurance
are distributed through 123.ie (our direct to consumer brand), affinity partnerships and brokers.
In Europe, RSA provides commercial and specialty insurance in Belgium, France, Spain and the Netherlands. We also provide
an intermediary platform to allow non-european insurers to place risks in Europe,
• Our Middle East operations cover Bahrain, the United Arab Emirates, Oman (where RSA operates under the Al Ahlia brand)
and Saudi Arabia (where RSA operates under the Al Alamiya brand).
2021 Operating DPW (proforma) 1
by line of business
2021 Operating DPW (proforma) 1
by region
2021 Operating DPW (proforma) 1
by distribution channel
Motor
Home & Pets
CL
UK
Ireland
Europe Middle-East
Brokers
Direct to consumers
30%
12%
58%
75%
5%
9%
11%
58%
42%
PL: Personal lines: CL: Commercial lines
1 Operating DPW (proforma) include the impact of the RSA Acquisition for a full year, which is a better indication of our annual premiums.
18 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
7.1 P&C UK&I
Underwriting results for P&C UK&I reflect two quarters of RSA’s underwriting activities in the UK, Ireland, Europe and the Middle East
following the close of the RSA Acquisition on June 1, 2021. The underwriting results of P&C UK&I for the month of June 2021 are
included in Corporate and Other.
All figures in the table below are shown in CAD, using an GBP/CAD average exchange rate of 1.699 for Q4-2021 and 1.7172 for H2-
2021.
Table 8 – Underwriting results for P&C UK&I 1
Operating DPW
Personal lines
Commercial lines
Operating NEP
Underwriting income
Underwriting ratios
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Commissions
General expenses
Expense ratio
Operating combined ratio
Personal lines
Commercial lines
Section
Q4-2021
7.2
7.3
7.2
7.3
1,274
517
757
1,145
80
58.8%
3.5%
(2.7)%
59.6%
18.0%
15.4%
33.4%
93.0%
96.1%
90.4%
20212
2,538
1,099
1,439
2,319
152
55.3%
7.0%
(2.7)%
59.6%
18.2%
15.6%
33.8%
93.4%
97.0%
90.5%
1 See Section 38 – Non-GAAP and other financial measures.
2 Reflected the underwriting results for the period from July 1, 2021 to December 31, 2021.
Q4-2021
• Operating DPW growth of 3% led by commercial lines,
with strong rate increases and retention . Personal lines
growth was subdued as we remained disciplined in
competitive market conditions.
H2-2021
• Operating DPW growth of 3%, reflecting hard market
conditions across commercial lines, partly offset by
competitive market conditions in personal auto.
• Expense ratio of 33.4% for Q4-2021 and 33.8% for 2021 was generally in line with expectations and reflected a sharp
improvement versus last year (close to 4 points), driven by continued expense management discipline.
• Operating combined ratio was strong at 93.0%,
supported by solid underlying performance and healthy
favourable PYD. We remain disciplined in personal lines as
the regulatory changes come into effect in the UK.
• Operating combined ratio was strong after six months
at 93.4%, despite absorbing 7.0 points of CAT losses,
driven by strong underlying performance in commercial
lines.
INTACT FINANCIAL CORPORATION 19
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
7.2 Personal lines – UK&I
Table 9 – Underwriting results for personal lines – UK&I 1
Operating DPW
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Operating combined ratio
1 See Section 38 – Non-GAAP and other financial measures.
2 Reflected the underwriting results for the period from July 1, 2021 to December 31, 2021.
Q4-2021
517
516
20
61.4%
0.9%
(3.0)%
59.3%
36.8%
96.1%
20212
1,099
1,054
32
58.5%
2.7%
(1.8)%
59.4%
37.6%
97.0%
Q4-2021
H2-2021
• Operating DPW declined by 3% for Q4-2021 and 2% for H2-2021. Personal auto premiums in the UK declined year-over-
year as we remained disciplined in competitive market conditions. UK p et and home insurance are performing well, with
retention levels above expectations.
• Underlying current year loss ratio increased from last
quarter but was solid at 61.4%, after absorbing elevated
non- CAT weather-related losses, as we continue to work on
improving profitability.
• CAT loss ratio of 0.9%, with no weather-related CAT
events in the quarter.
• Underlying current year loss ratio was solid at 58.5%,
driven by continued lower claims frequency in Q3-2021,
tempered by non-CAT weather-related losses in Q4-2021.
• CAT
loss ratio of 2.7% for H2-2021 was above
expectations, mostly driven by the floods in the UK and
Europe in Q3-2021.
•
Favourable PYD was strong at 3.0% for Q4-2021 and healthy at 1.8% for H2-2021 as we remain prudent in our reserve
practices.
• Expense ratio of 36.8% for Q4-2021 and 37.6% for H2-2021 remained elevated, reflecting lower earned premiums, partly
offset by continued expense management discipline.
• Operating combined ratio of 96.1%, driven by solid
underlying performance and strong favourable PYD.
• Operating combined ratio of 97.0% for H2-2021,
significantly impacted by severe weather conditions.
20 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
7.3 Commercial lines – UK&I
Table 10 – Underwriting results for commercial lines – UK&I 1
Operating DPW
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Operating combined ratio
Q4-2021
757
629
60
56.6%
5.7%
(2.5)%
59.8%
30.6%
90.4%
20212
1,439
1,265
120
52.7%
10.5%
(3.5)%
59.7%
30.8%
90.5%
1 See Section 38 – Non-GAAP and other financial measures.
2 Reflected the underwriting results for the period from July 1, 2021 to December 31, 2021.
• Operating DPW grew by 7% for Q4-2021 and H2-2021, reflecting continued hard market conditions and strong retention
Q4-2021
H2-2021
levels.
• Underlying current year loss ratio was strong at 56.6%,
despite being higher than last quarter, driven by continued
pricing actions and benign weather conditions.
• Underlying current year loss ratio was strong at 52.7%,
mainly driven by lower-than-expected non-CAT weather-
related losses.
• CAT loss ratio of 5.7% was above expectations, reflecting
three non weather-related CAT losses.
• CAT loss ratio of 10.5% for H2-2021 was significantly
higher than expectations, driven by the floods in the UK and
Europe in Q3-2021 and non weather-related CAT losses in
Q4-2021.
•
Favourable PYD was strong at 2.5% for Q4-2021 and 3.5% for H2-2021.
• Expense ratio of 30.6% for Q4-2021 and 30.8% for H2-2021 was lower than expected, reflecting the benefit of higher earned
rates and continued expense management discipline.
• Operating combined ratio was strong at 90.4%, driven
by strong underlying performance and favourable PYD,
tempered by elevated CAT losses.
• Operating combined ratio was strong at 90.5% for H2-
2021, as significantly elevated CAT losses were offset by
very strong underlying performance.
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 8 - US segment
Underwriting activities in the US
INSURANCE: P&C US
• We are focused on small to medium-sized businesses, with nearly US$1.6 billion ($2.0 billion) in annual operating DPW.
• We distribute insurance products and services in the US under the Intact Insurance Specialty Solutions brand through
independent agencies, regional and national brokers, wholesalers and managing general agencies.
• We provide a broad range of specialty insurance solutions tailored to meet the unique needs of specific industry segments or
product/customer groups.
•
•
Businesses serving targeted industry segments include accident & health (transportation, specialty health, and sharing
economy), technology, ocean marine, inland marine (construction, transportation, and fine arts), public entities,
entertainment, financial services, and financial institutions.
Businesses offering distinct specialty products to broad customer groups include specialty property, surety, tuition
reimbursement, management liability, cyber and environmental.
•
Each business unit is managed by an experienced team of specialty insurance professionals focused on a specific customer
group or industry segment.
• We seek to maintain a market-leading position in each customer or product niche in which we operate.
• Competitive factors for most of our insurance products are price, product terms and conditions, agency and broker relationships,
claims service, company scale and financial stability.
2021 Operating DPW by business units
Accident & Health 14%
Surety 13%
Technology 11%
Ocean Marine 10%
Specialty Property 9%
Management Liability 8%
Tuition Reimbursement 7%
Inland Marine 6%
Entertainment 6%
Public Entities 4%
Fin. Institutions 4%
Cyber 3%
Fin. Services 3%
Other 2%
22 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
8.1 P&C US
Table 11 – Underwriting results for P&C US 1
Operating DPW
Growth in constant currency
Operating NEP
Growth in constant currency
Underwriting income
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Commissions
General expenses
Premium taxes
Expense ratio
Operating combined ratio
Q4-2021
Q4-2020
Change
460
485
36
55.2%
2.3%
1.2%
58.7%
15.7%
16.1%
2.0%
33.8%
92.5%
401
432
35
55.2%
(0.9)%
1.3%
55.6%
16.2%
18.5%
1.7%
36.4%
92.0%
15%
19%
12%
16%
3%
-
3.2 pts
(0.1) pts
3.1 pts
(0.5) pts
(2.4)pts
0.3 pts
(2.6) pts
0.5 pts
2021
1,988
2020
1,823
1,652
1,582
117
53.3%
3.3%
(1.5)%
55.1%
16.8%
18.8%
2.2%
37.8%
92.9%
81
54.4%
3.0%
(0.9)%
56.5%
16.5%
19.7%
2.2%
38.4%
94.9%
Change
9%
17%
4%
12%
44%
(1.1) pts
0.3 pts
(0.6) pts
(1.4) pts
0.3 pts
(0.9) pts
-
(0.6) pts
(2.0) pts
1 See Section 38 – Non-GAAP and other financial measures.
Operating DPW
Underlying current year loss ratio
Operating combined ratio
8
8
9
1
,
3
2
8
1
,
0
5
6
1
,
2019
2020
2021
%
2
5
5
.
%
2
5
5
.
%
4
3
5
.
%
1
6
5
.
%
4
4
5
.
%
3
3
5
.
%
0
2
9
.
%
5
2
9
.
%
8
8
8
.
%
9
4
9
.
%
2
3
9
.
%
9
2
9
.
Full year
Q4
Full year
Q4
Full year
0
6
4
2
4
3
1
0
4
Q4
INTACT FINANCIAL CORPORATION 23
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Q4-2021 vs Q4-2020
• On a constant currency basis, strong operating
DPW growth was 19%, mainly driven by new
business growth, new products, as well as strong
renewals in most lines, combined with rate increases
in hard market conditions.
2021 vs 2020
• On a constant currency basis, strong operating DPW
growth was 17%. Growth was driven by strong renewals and
new business in most lines, including the recent expansion of
MGA relationships, amid ongoing hard market conditions.
Throughout 2021, we also delivered strong growth in lines most
impacted by the COVID-19 crisis in 2020.
• Underlying current year loss ratio was strong at 55.2% for Q4-2021 and 53.3% for 2021, driven by the benefit of our
profitability actions, including rate adequacy and a focus on portfolio quality.
• CAT loss ratio of 2.3% was above expectations and
included a large non- weather claim.
• CAT loss ratio of 3.3% was well above expectations, driven by
severe weather events (including the Texas winter storms and
Hurricane Ida) and a large non-weather claim in Q4-2021.
•
•
PYD ratio was unfavourable at 1.2%, mainly due to
adverse development from one business unit under a
profitability improvement plan, obscuring favourable
PYD across most business units.
Expense ratio improved by 2.6 points to 33.8%,
mainly due to a growing premium base.
•
•
Favourable PYD ratio was healthy at 1.5% across most
business units.
Expense ratio improved by 0.6 points to 37.8%, reflecting a
growing premium base and effective general expense
management throughout the year.
• Operating combined ratio was solid at 92.5% ,
essentially in line with last year, despite absorbing
2.3 points of CAT losses.
• Operating combined ratio of 92.9%, after absorbing 3.3 points
of CAT losses well above expectations. Strong underwriting
discipline, including our profitability actions, helped deliver solid
underlying results.
24 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 9 - Corporate
Group reinsurance, Corporate and Other
Consists of income and expenses related to activities managed centrally at the Corporate level, including:
Investment management activities (see Section 10 – Investment performance);
Treasury and capital management;
•
•
• Corporate reinsurance (see details below); and
• Other corporate activities.
Corporate also includes RSA’s Canadian and UK&I underwriting results for the month of June 2021 given the timing of the RSA
acquisition (June 1, 2021 closing).
9.1 Corporate and Other
Table 12 – Corporate and other
Section Q4-2021 Q4-2020
Change
Operating DPW (RSA)
Underwriting income (loss)
Corporate reinsurance (see below)
RSA (June 2021)
Net investment income
Total finance costs
Other operating income (expense)1
Corporate and other
10.1
4.2
-
(29)
-
220
(42)
4
153
-
(12)
-
143
(29)
2
104
-
(17)
77
nm
nm
49
2021
734
(64)
57
706
(153)
(25)
521
2020 Change
-
734
(8)
-
577
(115)
(37)
417
(56)
57
129
nm
nm
104
1 Other operating income (expense) can fluctuate from quarter to quarter and includes general corporate expenses related to the operation of the group
and our public company status, consolidation adjustments, and other operating items.
9.2 Corporate reinsurance
As part of our global risk management optimization strategy and international insurance operations, we have:
•
•
an aggregate reinsurance cover at the RSA level that provides protection against an unexpected accumulation of CAT and
large losses; and
internal reinsurance arrangements to optimize global reinsurance.
The impact of these reinsurance arrangements is included in our consolidated underwriting performance as follows:
Table 13 – Corporate and other (Corporate reinsurance)
Operating NEP
Operating net claims
Operating net underwriting expenses
Underwriting income (loss)
Q4-2021 Q4-2020
Change
2021
2020
Change
5
32
2
1
13
-
4
19
2
14
72
6
(29)
(12)
(17)
(64)
5
13
-
(8)
9
59
6
(56)
Q4-2021 vs Q4-2020
• Underwriting loss of $29 million in Q4-2021 included
$30 million of CAT losses ceded through internal
reinsurance, mostly related to the BC floods and one
commercial fire.
2021 vs 2020
• Underwriting
loss of $64 million
included
$57 million of CAT
internal
reinsurance, mostly related to commercial fires and BC
floods.
losses ceded
in 2021
through
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 10 - Investment performance
10.1 Net investment income
Table 14 – Net investment income
Interest income
Dividend income
Investment property rental income
Investment income, before expenses
Expenses
Net investment income
Average investments1,3
Market-based yield2,3
Q4-2021
Q4-2020
Change
2021
2020 Change
126
96
9
231
(11)
220
36,532
2.56%
88
62
-
150
(7)
143
38
34
9
81
(4)
77
426
297
17
740
(34)
706
358
242
-
600
(23)
577
20,017
83%
30,016
19,190
68
55
17
140
(11)
129
56%
3.04%
(48) bps
2.50%
3.18%
(68) bps
1 Defined as the mid-month average fair value of investments held during the reporting period.
2 Defined as the annualized total pre-tax investment income (before expenses), divided by the weighted-average investments.
3 This measure has been adjusted to align with the financial statements. Comparative figures are reported on the same basis.
Q4-2021 vs Q4-2020
2021 vs 2020
• Net investment income increased by $77 million for Q4-2021 and $129 million for 2021, mainly driven by the growth in
our investment portfolio following the RSA Acquisition. RSA contribution to net investment income was $54 million in Q4-2021
and $116 million after seven months.
•
Excluding the impact from the RSA acquisition, net
investment income was up 16%, driven by a special
dividend from one of our investments ($23 million).
•
Excluding the
impact from the RSA acquisition, net
investment income was up 2%, mainly driven by the benefit
of higher invested assets and a special dividend received in
Q4-2021, partly offset by lower reinvestment yields and a
weaker USD.
• Average investments increased by 83% for Q4-2021 and 56% for 2021, reflecting the addition of RSA’s investment portfolio
($14.3 billion on June 1, 2021), positive mark-to-market and cash inflows from operations.
• Market-based yield decreased to 2.56% for Q4-2021 and 2.50% for 2021, mainly related to the RSA Acquisition reflected
through higher average investments and lower yields, partially offset by the special dividend received in Q4-2021.
26 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
10.2 Realized and unrealized gains (losses) on FVTPL bonds
Realized and unrealized gains and losses on our FVTPL bonds are expected to offset the change in rates used to discount our claims
liabilities (MYA), which are both reflected in non- operating results.
Q4-2021 vs Q4-2020
2021 vs 2020
• Net losses of $68 million for Q4-2021 and $267 million for 2021, mainly driven by the increase in interest rates and widening
spreads in Canada, the US and the UK (see Section 25.5 – Capital market update).
• Net losses of $7 million in Q4-2020 driven by a slight
increase of interest rates in both Canada and the US.
• Net gains of $237 million in 2020, mainly driven by the
significant decline in interest rates in both Canada and the US.
10.3 Net gains (losses) excluding FVTPL bonds
Net investment gains (losses) are reported in Non-operating results and included the following items. See Section 25.5 – Capital market
update for more details on market performance.
Table 15 – Net gains (losses) excluding FVTPL bonds 1
Q4-2021 Q4-2020 Change
2021
2020 Change
Realized and unrealized gains (losses)2 on:
AFS bonds, net of derivatives
Equity securities, net of derivatives
Embedded derivatives
Investment property
Net foreign currency gains (losses) on investments
Impairment losses on AFS investments
Currency derivative hedges (RSA Acquisition):
Purchase price
Book value
Gain related to an investment in associate
Impairment loss on Intact US Surplus notes
Other3
Gains (losses) excluding FVTPL bonds
12
137
(6)
41
(29)
(11)
-
-
-
-
118
262
-
62
(12)
-
(1)
(22)
41
(22)
-
-
7
53
12
75
6
41
(28)
11
(41)
22
111
209
-
214
(96)
79
10
(92)
(71)
36
273
-
163
516
33
8
(14)
-
10
(121)
41
(22)
-
(30)
40
(55)
(33)
206
(82)
79
-
29
(112)
58
273
30
123
571
1 See Note 25 – Net gains (losses) to the Consolidated financial statements for further details.
2 Excluding foreign currency impact, which is reported in Net foreign currency gains (losses) on investments.
3 Includes realized gains on broker transactions, as well as an unrealized gain of $68 million related to certain venture investments.
Q4-2021 vs Q4-2020
2021 vs 2020
Net gains of $262 million for Q4-2021 reflected:
Net gains of $516 million for 2021, mainly reflected:
•
•
•
realized gains on equity securities from
favourable markets;
positive mark-to-market on certain investment
properties;
unrealized gain of $68 million related to
certain venture investments.
Partly offset by:
•
net foreign currency losses on our GBP
investment portfolio, and impairment losses
on AFS investments.
•
•
•
realized gains from favourable equity markets and
positive mark-to-market on certain
investment
properties;
unrealized gain of $68 million related to certain venture
investments; and
a net gain of $66 million related to a venture investment
for which we no longer have any exposure, as well as
broker gains.
Partly offset by:
• mark-to-market losses on our embedded derivatives
related to our preferred shares.
INTACT FINANCIAL CORPORATION 27
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 11 - Income taxes
11.1 Statutory income tax rates
We are subject to income tax law in various jurisdictions where we operate. The statutory income tax rates in the main jurisdictions we
operate were as follows:
Table 16 – Statutory income tax rates
As at December 31,
Canada1
UK
US
Corporate2
2021
26.2%
19.0%
21.0%
25.9%
2020
26.2%
n/a
21.0%
26.0%
1 Represents the combined Canadian tax rates applicable in provinces where the Group operates.
2 Represents the combined Canadian federal and provincial statutory income tax rate of the top parent company.
Tax legislative changes
•
•
•
The UK corporate tax rate will rise from 19% to 25% on April 1, 2023. The impact of this rate change on deferred tax assets
and liabilities has been reflected in the Consolidated financial statements as at December 31, 2021, as enacted.
In 2021, the US Congress proposed a legislation called the Build Back Better Act that proposes changes to corporate income
tax laws. We are actively monitoring future developments on this proposed legislation and any potential impact on the Group.
In 2021, 136 countries and jurisdictions, including Canada, have agreed to implement the Organisation for Economic Co-
operation and Development’s (OECD) Pillar Two rules, effective in 2023. The proposed Pillar Two rules are designed to ensure
that large multinational enterprises pay a minimum level of tax (currently agreed upon at 15%) on the income arising in each
jurisdiction where they operate. The proposed rules remain subject to approval and ratification in multiple countries and
jurisdictions. We are actively monitoring future developments on this proposed legislation and any potential impact on the
Group.
11.2 Effective income tax rates
Our effective income tax rate (“ETR”) is different from our Corporate combined Canadian federal and provincial statutory income tax
rate. The following table presents the reconciliation of the operating ETR and total ETR to the income tax expense calculated at statutory
tax rates.
Table 17 – Effective income tax rate reconciliation
As at December 31,
Statutory income tax rate - Corporate (Table 16)
Adjustment for different rates of other jurisdictions
Non-taxable investment income
Utilization of previously unrecognized tax benefits associated with losses
Other
Operating effective income tax rate, as reported in MD&A1
Non-taxable portion of capital gains
Non-taxable bargain purchase gain
Non-deductible expenses
Other
Total effective income tax rate, as reported in MD&A1
Remove: share of income tax expense of broker associates1
Effective income tax rate, as reported under IFRS
2021
25.9%
(1.2)%
(2.5)%
(1.4)%
0.8%
21.6%
(1.5)%
(2.1)%
1.0%
0.6%
19.6%
(0.9)%
18.7%
2020
26.2%
(0.5)%
(2.7)%
(0.1)%
0.3%
23.2%
(1.3)%
-
0.6%
(0.8)%
21.7%
(1.3)%
20.4%
1 Include income taxes from our broker associates, which are accounted for using the equity method (net of tax) under IFRS. We adjust for the MD&A
in order to present distribution income on a pre-tax basis.
28 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
•
•
2021 vs 2020
The Group’s operating ETR of 21.6% in 2021 was within our expectations and down from 23.2%, primarily due to:
o
o
the impact of utilizing previously unrecognized tax benefits associated with net operating losses in the UK; and
changes in earnings mix, and underwriting income taxed at different rates in other jurisdictions.
The Group’s total ETR of 19.6% in 2021 was down from 21.7%, mostly due to the impact of the non- taxable purchase gain
of $204 million resulting from the RSA Acquisition.
Please refer to Note 27 – Income taxes of the Consolidated Financial Statements for further details related to income taxes.
11.3 Unrecognized net operating losses
The following table presents a summary of unrecognized net operating losses as at December 31, 2021.
Table 18 – Unrecognized net operating losses
As at December 31,
Canada
UK
Ireland
Other jurisdictions
Expiry dates
2037-2041
No expiry date
No expiry date
No expiry date
2021
3
2,788
353
112
3,256
Recognition of tax benefits
• Deferred tax assets related to the net operating losses above have not been recognized on the balance sheet since it is not
considered probable that they will be utilized in the future. However, management will continue to identify opportunities,
including a sustained improvement of the profitability in the UK, in order to be able to use these unrecognized losses through
time which will favorably impact the operating ETR and total ETR.
• Any utilization of previously unrecognized tax benefits associated with unrecognized net operating losses in the UK would
have a favourable impact on the Group’s operating ETR in future years given the quantum of these losses (refer to table 18
for more details on unrecognized net operating losses).
Please refer to Note 27 – Income taxes of the Consolidated Financial Statements for further details related to income taxes.
INTACT FINANCIAL CORPORATION 29
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
ENVIRONMENT & OUTLOOK
Section 12 - P&C insurance industry outlook
Summary
•
•
•
•
Canadian industry profitability improved in the twelve months to September 30, 2021, helped in part by favourable PYD and
reduced driving activity during the pandemic. However, high pre-pandemic combined ratios, emerging inflation, and the still
relatively low interest rate environment support continuation of favourable market conditions.
In Canada, we expect firm market conditions to continue in personal property, while personal auto rates remain tempered in the
pandemic environment.
In commercial lines in both US and Canada, hard market conditions are expected to continue.
In the UK&I, hard market conditions are expected to continue across commercial lines. In UK personal lines, near term industry
growth levels are uncertain as companies navigate the recently introduced pricing reforms.
P&C insurance industry
12-month outlook
•
•
Industry premiums grew by low-single
digits in the first three quarters of 2021. We
estimate that actual growth was flat, if
adjusted for the impact of COVID-19
premium relief on prior year figures.
Industry profitability improved in the first
three quarters of 2021, due to lower driving
levels and a change in driving patterns
during the pandemic.
• However, given a gradual pickup in claims
frequencies and poor industry profitability
prior to the pandemic, we are starting to
see early signs of industry corrective
measures.
• We expect industry premium growth to
remain muted in the near term, returning to
low-to-mid single-digit growth as driving
patterns return to pre-pandemic norms.
Our response
• Our COVID-19 relief measures have been risk- and needs-
based, enabling us to adapt, while maintaining margins.
• We continue to monitor closely how driving, mobility and
inflation trends are evolving and adjust our rating strategies
accordingly.
• Our telematics offering is well positioned in an environment
where drivers want insurance to reflect their own behaviours
and where value for money is becoming more important.
• We continue to invest in telematics, big data, and artificial
intelligence to maintain our advantage in data and
segmentation.
• Our brand investments and focus on customer driven digital
leadership will continue to help grow our business.
• We maintain our emphasis on portfolio quality and
sustaining target profitability levels.
•
The COVID-19 crisis has not materially
impacted personal property.
• We are continuously adapting our products and profitability
actions over time have positioned this business very well.
•
Industry growth was high single digit in the
first three quarters of 2021.
• We expect continued
firm market
conditions since this line of business is
subject to challenging weather and inflation
over time. We expect premium growth at a
mid single-digit level over the next 12
months.
• We continue to aim for sustainable results even with severe
weather.
• We actively monitor for signs of inflation within our portfolio,
and are proactively defending against potential inflation
through supply chain
increasing
internalization of claims. For example, the acquisition of On
Side deepens our supply chain penetration to improve
customer experience, capture margins, expand capacity,
and control costs.
initiatives and
Personal
Auto
Canada
Personal
Property
Canada
30 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
Our response
•
In the first three quarters of 2021, the industry
reported low teens growth, clear evidence of
hard market conditions. Rate actions are
continuing, driven by low industry profitability for
a number of years and tight capacity.
• We continue to provide risk- and needs-based relief to
customers impacted by the COVID-19 crisis through
premium adjustments to reflect changed commercial
automobile usage or declining revenues, sales receipts
and payroll.
Commercial
lines
Canada
• We expect upper single-digit premium growth
for the industry over the next 12 months, in
favourable market conditions supported by the
still relatively low interest rate environment,
rising reinsurance costs, elevated CAT losses,
and industry concerns over emerging inflation
pressures.
•
•
•
Premium growth in the UK and Ireland has been
muted as insurers passed on benefits from
COVID-19 related frequency declines, and
position for regulator-led pricing reforms in the
UK.
The Financial Conduct Authority's (FCA) pricing
reforms came into effect January 1, 2022 and
are expected to bring both volatility and
opportunities to the UK home and motor
markets.
In the UK, we expect property claims inflation
and challenging weather to drive rate increases
over time.
Ireland, property rates are
experiencing low single-digit increases.
In
• UK&I market conditions remain hard with rate
increases driven by CAT losses (including
COVID-19 and
recent weather events),
tightening capacity and inflationary pressures.
• We expect UK commercial industry premiums to
grow at an upper single-digit level over the next
12 months.
UK&I
Personal
lines
UK&I
Commercial
lines
•
The majority of our businesses had low exposure to
COVID-19 related claims. We maintain our emphasis
on portfolio quality and pricing discipline, while
remaining focused on loss prevention and service
excellence.
• We continue to develop innovative products to address
customer needs and pursue acquisitions to strengthen
our capabilities and product suite.
• We continue
to prioritise risk selection and
improvements to pricing sophistication, and ensure
partner contracts reflect changing market conditions.
• Our business is well positioned and in compliance with
pricing reforms that came into effect in the UK on
January 1, 2022. We are maintaining our pricing
discipline and are tracking inflation closely to support
pricing adequacy.
•
In UK Motor, we have moved to a tiered product
offering to increase customer choice while improving
pricing and segmentation. Our telematics offerings are
also well positioned to grow, as new driver numbers
increase as a result of COVID-19 driving test
restrictions being lifted.
• We continue to increase rates to offset claims inflation,
increase
tighten
terms and conditions, and
standardisation of wordings to manage exposures.
• We remain disciplined on new business, prioritizing
quality and profitability.
INTACT FINANCIAL CORPORATION 31
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
Our response
•
The US commercial P&C industry continues to
experience hard market conditions across
lines, including sustained price increases and
tightening terms and conditions.
• Our objective remains to expand our US specialty
business. Growth opportunities are being
successfully pursued in the segments of the
portfolio performing at or above expectations.
US
Commercial
lines
Investments
Overall
• We expect favourable market conditions to
persist in the near term, supported by the still
relatively low interest rate environment, rising
reinsurance costs, elevated CAT losses, and
industry concerns over emerging inflation
pressures.
• US commercial P&C
industry posted low
double-digit growth in the first three quarters of
2021, fueled by strong rate increases and
robust economic growth. The
industry
combined ratio for the first three quarters of
2021 was estimated in the mid-to-upper 90’s.
• We expect industry premium growth at a upper
single-digit level over the next 12 months.
• Capital markets are expected to remain volatile
to inflation trends and the ongoing
due
pandemic.
• Central banks are expected to increase rates
and decrease balance sheet size. As a result,
reinvestment yields are improving from very
low levels.
•
•
In the current interest rate environment, we
expect the industry’s pre-tax investment yield
to remain stable over time as portfolios roll
over.
Industry profitability improved in the first three
quarters of 2021, helped in part by favourable
PYD and reduced driving activity during the
pandemic. However, high pre-pandemic
combined ratios, inflation trends, and the still
relatively low interest rate environment support
continuation of hard market conditions.
• We expect our industry benchmark ROE to be
in the high single digit range over the next
12 months.
1
• We continue to execute on pricing actions across
the portfolio, achieving rate increases consistent
with
industry while maintaining
retention levels in line with expectations.
the broader
• We believe the underlying fundamentals of our US
commercial business remain strong and are well
positioned to maintain a low 90’s combined ratio in
line with our objective.
• Our investment portfolio is managed like the rest of
our business, for the long- term. Our investment
management team seeks to maximize after-tax
returns, while preserving capital and limiting
volatility.
• We are well positioned for a low interest rate
environment. Our insurance products are short-
term in nature and priced to generate mid-teens
ROEs, taking into account our investment portfolio
yields.
• We continuously seek to optimize the composition
of our investment portfolio, considering factors
including risk, return, capital, regulation and tax
legislation changes.
•
The RSA Acquisition expands our leadership
position in Canada, creates a leading specialty
lines platform with international expertise, and
provides entry into the UK and Ireland markets at
scale.
• With our action plans and strategies, we expect to
continue to achieve our 500-basis point industry
ROE outperformance target, while remaining
focused on a mid- teens OROE level.
1 Our P&C industry benchmark ROE reflects a weighting based on the approximate amount of capital deployed by IFC in the markets in which we
operate
32 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 13 - Insurance industry at a glance
13.1 P&C insurance in Canada
Highly
fragmented
Evolving
and
growing
over time
Broad
distribution
channel
•
•
•
In 2020, the P&C market grew by 9%, driven by rate increases, to $64 billion in annual premiums, representing
approximately 3% of gross domestic product (GDP).
The top five insurers represent 51% of the market, and the top 20 have a combined market share of 84%.
There has been consolidation over the past decade in which IFC has participated. We still expect 10 to
15 points of market share will change hands in the next three to five years.
• Over the last 30 years, the industry has grown at about a 5% CAGR and delivered a ROE of almost 10%.
• Emerging technologies and innovations continue to transform the insurance landscape. IFC and other insurers
are increasingly using artificial intelligence models, advanced analytics systems and digital platforms to
differentiate themselves and improve risk selection.
•
The P&C industry offers its products primarily through the broker and direct distribution channels. Brokers
offer products from multiple insurance companies. The direct distribution channel includes direct writers and
tied agents.
• Close to two-thirds of the P&C industry premiums is distributed through brokers.
•
•
In commercial lines, brokers are the primary distribution channel given the higher level of complexity
and customization in business insurance.
In personal lines, while brokers continue to be the main distribution channel, direct writers make up
a significant portion of the market as consumers seek digital solutions for personal property and auto
products.
•
•
•
Regulated
market
Insurance companies are licensed under insurance legislation in each of the provinces and territories in which
they conduct business.
Personal property and commercial insurance products and rates are unregulated
Personal auto is regulated in all provinces. Insurers must file and receive approval for rate adjustments before
they can be effective (file and approve rate setting mechanism), except for Québec, where no approval is
required once rate adjustments are filed (use and file).
• Capital for federal insurance companies is regulated by OSFI and by provincial authorities in the case of
provincially incorporated insurance companies, while the holding companies are non-regulated (see
Section 28 – Capital management).
2020 Industry DPW
by line of business
PA
PP
CL
23%
36%
41%
2020 Industry DPW
by region
Ontario
Alberta
Québec
Other
46%
19%
18%
17%
PA: Personal auto; PP: Personal property: CL: Commercial lines
2020 Industry DPW
by distribution channel
Brokers
Direct
60%
40%
INTACT FINANCIAL CORPORATION 33
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
13.2
IFC’s Canadian industry outperformance over time
Industry data below represents an IFC estimate based on MSA, a provider of Canadian insurance industry financial data. Industry
benchmark consists of the 20 largest comparable companies in the P&C industry based on industry data.
Table 19 – Canadian P&C Industry – IFC outperformance (underperformance)
YTD
Q3-2021
Full year
2020
Full year
2019
Full year
2018
DPW growth
IFC: P&C Canada1
Outperformance (underperformance) vs Industry benchmark
16.5%
9.2 pts
9.4%
2.0 pts
9.7%
- pts
2.3%
(4.4) pts
Combined ratio
IFC: P&C Canada1
Outperformance (underperformance) vs Industry benchmark
86.6%
(2.1) pts
91.5%
5.0 pts
97.5%
3.6 pts
95.0%
8.3 pts
1 For comparison purposes, IFC DPW growth and operating combined ratio are based on financial statements presentation.
Unless otherwise noted, market share and market related data for P&C Canada are based on the latest available annual market data (2021) from MSA
Research Inc. (“MSA”) and excludes LIoyd’s Underwriters Canada, Insurance Corporation of British Columbia, Saskatchewan Government Insurance,
Saskatchewan Auto Fund, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. AMF
(Québec) chartered insurance companies are not required to report on Q1 and Q3 results. As such, some adjustments are made to ensure comparability
of data across periods.
YTD Q3-2021
relative
performance
• Our growth outperformance was 9.2 points, mainly driven by the RSA Acquisition. Excluding this impact,
IFC growth would be approximately 5.8%, underperforming the benchmark by 1.4 points, mainly due to the
impact of customer relief measures provided in 2020.
• Our combined ratio underperformance was 2.1 points, mainly due to industry reserve level generally
decreasing in 2021, as well as different levels of customer premium relief measures provided.
13.3 P&C insurance in UK&I
Overall
•
•
•
•
•
•
IFC underwrites automobile, home, pet and business insurance to individuals and businesses in the UK,
Ireland, Europe and the Middle East, as well as internationally through our global network.
Roughly 75% of UK&I segment premiums are written in the UK domestically or through the Specialty London
Market. Our Irish and European books experience broadly similar market conditions to the UK and London
Market respectively.
In 2020, the P&C UK market grew by 7% to £48 billion in estimated annual premiums.
IFC’s UK (RSA) portfolios held a 6% market share in the Total P&C UK industry in 2020.
RSA was the third largest UK home insurer, with market share of 10%, and the 2nd largest pet insurer, with a
market share of 18%, but a smaller player in motor with 1% market share.
Property and Marine are RSA’s most significant lines of business in UK and European Specialty Lines.
• Mature and highly developed personal lines market. Motor is the largest segment, with premiums of £12 billion.
UK
Personal
lines market
•
•
The home insurance market is worth around £6 billion, while pet insurance adds another £1.3 billion.
New business is primarily distributed through price comparison websites and aggregators, which have grown
substantially over the last two decades.
Technical excellence in pricing and claims is the key differentiator for the most successful players.
34
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
UK
Commercial
lines
market
UK
Specialty
lines
market
Strong
regulations
•
•
The mid-market in UK domestic commercial lines is worth £19 billion. The market is primarily comprised of
motor, liability and property risks, and c ompetitive with most leading multinationals having a major presence.
The UK SME segment worth an additional £6 billion.
There has been significant broker consolidation over the last twenty years, with the largest brokers controlling
a significant proportion of the market although there remains a large tail of smaller brokers.
• Winning in mid-market requires strong regional presence, underwriting expertise and specialization in chosen
industries.
• Brokers remain the primary distribution channel for SME. Over the last 15 years, there has been a shift from
face-to-face to electronic placement of risks, though the growth of the direct market has been slow.
The London Speciality Market is worth £9 billion.
•
• Growth has been strong in the market, primarily driven by the hard market conditions over recent periods.
•
•
Profit opportunities continue to be driven by disciplined trading, a sustainable underwriting strategy, and the
achievement of adequacy through positive rate movements.
The UK non- life insurance industry is regulated by two regulatory bodies, the PRA and the FCA. The PRA
provides supervision to ensure the safety and soundness of financial institutions, including insurance
companies. The FCA provides oversight on the way firms behave.
• Recent regulations have focused on improving customer outcomes including ‘price walking’ regulations –
equalizing new business and renewal quotation – and setting a higher level of consumer protection in retail
Financial service.
Market data
2020 estimated industry premiums
Performance against UK P&C Industry
Unless otherwise noted, market share and
market related data for P&C UK are based on
the latest available annual market data (2021)
from the Association of British Insurers
(“ABI”). ABI data excludes Lloyds of London.
The majority of UK insurers are members of
the ABI, meaning Personal Lines and
Commercial Lines figures are representative.
For Specialty Lines, ABI market data is less
representative as a lower proportion of
Specialty Insurance firms are members due to
the existence of dedicated membership
organisations such as the International
Underwriting Association (“IUA”) or the
Lloyds Marker Association (“LMA”).
PL
CL
SL
19%
40%
£48B
41%
The identification of an appropriate
benchmarking methodology aligned with
IFC benchmarking practices is currently in
progress.
This comparison will be made available at
a later time.
INTACT FINANCIAL CORPORATION 35
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
13.4 US specialty market
Highly
fragmented
with no
clear leader
•
The US specialty insurance market accounts for approximately 45%, or more than US$150 billion, of the total
commercial P&C insurance market.
• US commercial specialty insurance industry is fragmented, with the largest player capturing around 7% market
share in 2020.
• Outside of the top seven players, no single insurer contributes more than 3% to the total estimated specialty
market. The majority of the top 25 players have a market share between 1% and 2.5%.
Niche
market with
lucrative
potential
•
•
•
The specialty insurance market offers niche and unique products and services that are not written by most
P&C insurance companies. These products generally require specialized underwriting knowledge compared
with more traditional insurance products.
The combined ratio of many specialty products have outperformed those typically offered in the standard
market due to more pricing and policy form flexibility.
This unique risk and specialty focus can also come with above-average earnings volatility.
• Over the last 20 years, the specialty insurance market has remained attractive, and has grown at an
approximate 4.4% CAGR.
Evolving
and
growing
over time
•
•
•
The market has experienced elevated merger and acquisition activity in recent years and we expect further
consolidation to continue.
The agency channel (independent agencies, brokers, wholesalers and MGAs) is the primary distribution
channel for specialty insurance products.
Trends in litigation, regulation, social and workforce issues, and technology will continue to support growth
and drive product innovation.
13.5 Performance against US P&C industry
The industry benchmark consists of the 11 most relevant competitors in the P&C industry, for which reliable and comparable information
is publicly available. The data below is compiled from company and segment data from SEC filings.
Table 20 – US P&C Industry – IFC outperformance (underperformance) vs industry benchmark
YTD
Q3-2021
Full year
2020
Full year
2019
Full year
2018
DPW growth (in local currency)
IFC: US Commercial
Outperformance (underperformance) vs Industry benchmark
16.1%
(1.9) pts
9.6%
1.7 pts
8.0%
(1.2) pts
2.2%
(6.7) pts
Combined ratio1
IFC: US Commercial
Outperformance (underperformance) vs Industry benchmark
94.7%
(2.1) pts
93.8%
4.7 pts
92.8%
2.3 pts
93.6%
1.3 pts
1 Excluding the risk margin and discount impact for comparability purposes.
YTD Q3-2021
relative
performance
• Our DPW growth lagged slightly as we remained disciplined and took action on specific lines under
profitability improvement plans. However, like our peers, we benefitted from a combination of hard market
conditions and rebound in lines most impacted by the COVID-19 crisis in 2020.
• Our combined ratio underperformance was 2.1 points, reflecting isolated adverse PYD from a single
business unit operating under a profitability improvement plan. Overall, our underlying performance in most
lines was quite strong, with a comparatively smaller impact from non-CAT weather losses.
36 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 14 - COVID-19 pandemic update
14.1 Helping customers and supporting our communities
•
•
The COVID-19 pandemic has had a significant impact on society, and it is important for us to support our communities through
this difficult time.
To recognize hardship, changing driving behaviours and lower business activity resulting from the COVID-19 crisis, we provided
over $600 million of relief in 2020 and 2021 to more than 1.2 million customers. Customer premium relief measures included
premium reductions and payment flexibility, as well as a $50 million targeted relief program, which provided an additional support
to approximately 100,000 vulnerable small business customers.
• We have donated more than $1.9 million in 2021 to charities targeting the immediate needs of individuals and families who are
most vulnerable to the effects of the pandemic.
14.2 Prioritizing employee well-being, while delivering superior customer service
• Since the onset of the COVID-19 crisis, the health and safety of our employees has been our priority and the vast majority of
our employees are now working from home. We have also provided employees with a number of mental health and well-being
resources to support them.
• Our robust technology infrastructure is performing very well and we are building on this strong foundation to further support our
employees and accelerate digital engagement with customers and brokers.
• Customer needs changed as a result of the COVID-19 crisis and we responded accordingly with measures such as customer-
driven rate strategies, accelerated deployment of UBI, product enhancements in personal property and continued support to the
most vulnerable small businesses.
• We also evolved our product offerings and ramped up our digital efforts to deliver excellent customer service.
• Service levels to our customers and brokers remain high as our people and processes quickly adapted to the evolving COVID-
19 situation.
• We are well positioned to continue to support our customers, invest in our people and create value for all stakeholders.
14.3 Claims impact
•
There was a direct claims impact from the COVID-19 related losses, such as business interruption, event cancellation and
production shutdowns. The magnitude of the impact varies across segments. We maintain strong reserves against these claims
and expect these reserves to remain stable.
• Over the course of the pandemic, COVID-19 restrictions led to a notable drop in driving activity and a change in driving patterns
that contributed to a decrease in auto claims frequency. We provided customer premium relief measures in 2020 and 2021 to
reflect lower driving activity.
14.4
Gradual shift to a post-pandemic environment
• As economies continues to emerge from this crisis, we are closely monitoring auto claims development as driving activity
gradually increases.
• Health and safety of our employees remains a top priority. We continue to monitor the COVID-19 crisis and governments’
guidance, while remaining agile in our return-to-office plans and implementation of our hybrid work arrangements.
• Our balance sheet is strong, with $2.9 billion of total capital margin as at December 31, 2021, and our business is well positioned
to sustain mid-teens operating ROE performance.
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 15 - Prior year claims development
PYD ratio (2012-21)1
%
7
.
5
%
3
.
5
%
0
.
5
%
3
.
6
%
9
.
4
%
8
.
2
%
9
.
1
%
0
.
0
%
9
.
0
%
8
.
3
2012
1 As a % of NEP.
2013
2014
2015
2016
2017
2018
2019
2020
2021
Table 21 – Net (favourable) unfavourable PYD by segment
•
•
PYD can fluctuate from quarter to
quarter and year to year and,
therefore, should be evaluated over
longer periods of time.
Favourable PYD ratio averaged 3.7%
over the last 10-year period.
By segment
P&C Canada
Personal auto
Personal property
Commercial lines
P&C UK&I
Personal lines
Commercial lines
P&C US
Corporate1
Consolidated
(Favourable) unfavourable PYD ratio2
P&C Canada
P&C UK&I
P&C US
Consolidated
Q4-2021 Q4-2020
Change
2021
2020 Change
(53)
(9)
(67)
(129)
(15)
(16)
(31)
6
(6)
(11)
(15)
(7)
(33)
n/a
n/a
n/a
5
n/a
(42)
6
(60)
(96)
nm
nm
Nm
1
nm
(189)
(99)
(210)
(498)
(19)
(44)
(63)
(25)
(8)
(6)
(46)
(33)
(85)
n/a
n/a
n/a
(15)
n/a
(183)
(53)
(177)
(413)
nm
nm
nm
(10)
nm
(160)
(28)
(132)
(594)
(100)
(494)
(4.0)%
(2.7)%
1.2%
(3.3)%
(1.4)%
n/a
1.3%
(2.6) pts
nm
(0.1) pts
(1.0)%
(2.3) pts
(4.4)%
(2.7)%
(1.5)%
(3.8)%
(0.9)%
n/a
(0.9)%
(3.5) pts
nm
(0.6) pts
(0.9)%
(2.9) pts
1 Includes the impact of Corporate reinsurance. (see Section 9.2 – Corporate reinsurance for details).
2 As a % of NEP. See Section 38 – Non-GAAP and other financial measures.
•
Favourable PYD ratio of 3.8% for 2021 was slightly above guidance and higher than last year, reflecting reduced uncertainty
around claims patterns during the pandemic.
Highlights
15.1 PYD guidance
• We expect average favourable PYD as a percentage of operating NEP to be in the 1-3% range over the long- term.
•
•
In the short term we expect favourable PYD in the upper half of the range.
The RSA Acquisition does not change our view over the long term.
38 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 16 - CAT losses and weather conditions
16.1 Net current year CAT losses
CAT losses can be caused by a variety of events, including weather (such as wildfires, hailstorms and floods) and non-weather events
(such as large commercial fires, surety and liability losses, as well as direct losses related to the COVID-19 crisis).
The incidence and severity of CAT losses, while inherently unpredictable, can have a significant impact on our underwriting performance
by quarter and by line of business. We generally seek to manage our exposure to CAT losses at the company level, through individual
risk selection and the purchase of reinsurance contracts. Refer to Section 33.6 – Top and emerging risks that may affect future results
for details on Catastrophe risk.
CAT loss ratio (2012-21)
%
3
.
7
%
8
.
3
%
5
.
1
%
0
.
5
%
3
.
3
%
7
.
3
%
4
.
3
%
6
.
3
%
2
.
3
%
2
.
4
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
• CAT loss ratio of 4.2% in 2021 was higher than
2020 and 10-year average (3.9%).
•
It was particularly elevated in 2013 and 2016,
due to the Alberta and Toronto floods (2013)
and Fort MacMurray wildfires (2016), and
especially low in 2015, due to benign weather.
16.2 CAT guidance
• We increased our expectations for annual CAT losses (net of reinsurance) to $600 million, from $570 million, reflecting the
reinsurance program currently in place (see Section 26.2 – Reinsurance for details).
• Our estimate reflects our view of longer-term trends, our growing premium base, concentration and management of risk,
product mix and geographical mix.
• We generally expect approximately two-thirds to impact personal lines, and about one-third of the annual estimate in each of
the second and third quarters.
Catastrophe claims are any one claim, or group of claims, equal to or greater than a predetermined CAT threshold, before reinsurance,
related to a single event. Reported CAT losses can either be weather-related or not weather-related and exclude those from exited
lines. Effective July 1, 2021, our CAT thresholds are as follows; P&C Canada: $10 million, P&C UK&I: £7.5 million and P&C U.S:
US$5 million.
16.3 CAT disclosure policy
• Our exposure to CAT losses is mitigated in part by a robust reinsurance program and prudent risk selection. However, the
incidence and severity of CAT losses can vary significantly by quarter and by line of business.
• We consider press releasing the estimated CAT losses ahead of the quarterly earnings release when:
o
o
our CAT loss estimate, net of reinsurance, is expected to have an impact greater than $0.65 on NOIPS and is
materially above expectations for the quarter; or
if we perceive that there is material misinformation in the market with respect to the impact of certain CAT events on
our results, which is subject to judgement.
•
If we decide to press release, it is typically issued within the first two weeks following quarter end.
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
16.4 Net current year CAT losses
Table 22 – Net current year CAT losses by segment
By segment
P&C Canada
Personal auto
Personal property
Commercial lines
P&C UK&I
Personal auto
Personal property
P&C US
Corporate1
Consolidated
CAT loss ratio2
P&C Canada
P&C UK&I
P&C US
Q4-2021 Q4-2020
Change
2021
2020 Change
5
57
42
104
5
36
41
11
30
186
6
15
44
65
n/a
n/a
n/a
(4)
13
74
3.2%
3.5%
2.3%
2.7%
n/a
(0.9)%
(1)
42
(2)
39
5
36
41
15
17
112
0.5 pts
nm
3.2 pts
24
207
147
378
28
134
162
54
82
676
43
92
164
299
n/a
n/a
n/a
47
13
359
(19)
115
(17)
79
28
134
162
7
69
317
3.3%
7.0%
3.3%
3.1%
n/a
3.0%
0.2 pts
nm
0.3 pts
Consolidated
3.8%
1 Includes the impact of Corporate reinsurance, as well as $25 million of CAT losses related to RSA Canada in June 2021 (see Section
4.2%
1.0 pts
1.2 pts
2.6%
3.2%
9.2 – Corporate reinsurance for details).
2 See Section 38 – Non-GAAP and other financial measures.
Q4-2021 vs Q4-2020
• Overall, net CAT losses of $186 million (CAT
loss ratio of 3.8%), mainly reflecting the impact
of flooding in British Columbia, as well and non-
weather events in the UK&I and US.
2021 vs 2020
• Overall, net CAT losses of $676 million (CAT loss ratio of 4.2%),
mainly reflecting the impact of severe weather events across
Canada, flooding in the UK and Hurricane Ida.
40 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
16.5 Weather conditions
CANADA
•
•
•
•
•
•
•
In Q1-2021, the winter in Canada was particularly mild and dry, with temperatures warmer than average, especially in
January. The high temperatures and low precipitation contributed to an early snowmelt. In Western Canada, a polar vortex hit
in February, drastically decreasing temperatures. Overall, weather-related losses were lower than expected for a first quarter.
In Q2-2021, the weather was generally mild. Quebec and Ontario were impacted by some tornadoes causing localized
damage in the region. In the West, temperatures in Southern BC were abnormally warm, contributing to the Lytton wildfire.
CAT losses in Canada of $74 million (including $25 million from RSA) included $38 million related to the BC wildfires.
In Q3-2021, the summer was hot and generally dry, leading to a busy wildfire season in B.C. and Ontario. Parts of Eastern
Canada were impacted by strong storms and the Maritimes had above average precipitation. CAT losses of $204 million were
mostly weather driven and reflected the impact of severe weather events, including rain and hailstorms in Alberta, Ontario, and
Atlantic Canada.
In Q4-2021, the region of BC was impacted by floods in November 2021, with some areas receiving over 250 mm of rain in a
few days. In the East, an intense windstorm caused property damage in mid- December, the same that spawned several
tornadoes in the US in the days before. In the West, we saw record-breaking cold temperatures towards the end of the year.
CAT losses of $104 million reflected the impact of the BC floods and Ontario and Quebec windstorms
UK&I
In Q3-2021, the UK&I region experienced significant weather-related losses, mainly driven by extreme flooding in Western
Europe in mid July, with industry losses in the region of £11 billion. Whilst the floods mainly affected Germany and Benelux
nations, significant impacts were experienced in the UK.
In Q4-2021, weather activity was relatively benign in UK&I. Notable impacts included Cyclone Shaheen in Oman at
£2 million and Storm Arwen in the UK at £5 million. These impacts were more than offset by favourable underlying experience
in Ireland and UK Commercial businesses.
In Q1-2021, weather-related losses were elevated, driven by significant winter storms, particularly a cold snap that hit
several southern states, including Texas, during February 2021, with power outages compounding the impact. The severe
weather resulted in extensive insurance industry losses estimated between $10 billion to $20 billion (comparable to Category
4 Hurricane Harvey in 2017).
US
• Severe winter events led to higher than usual CAT and non- CAT weather-related losses, mainly related to flooding resulting
from frozen pipes in the Specialty Property, Technology and Financial Services businesses.
•
•
•
•
In Q2-2021, weather-related losses were muted as fairly benign weather across most of the country resulted in lower losses
across the industry.
In Q3-2021, CAT losses of $16 million were well above expectations and mostly driven by Hurricane Ida. Ida made
landfall in Louisiana as a Category 4 Hurricane on August 29, 2021 and continued to cause major damage, including
catastrophic flooding, as it moved up through the Northeastern US over the next several days. Total industry losses for
Hurricane Ida are estimated at over US$60 billion, making it one of the top 5 costliest hurricanes of modern times.
In Q4-2021, weather-related losses were closer to historical average. Some of the weather events include multiple winter
storms and severe wind events, including US$3 billion from Midwest tornados, as well as the most destructive wildfire in
Colorado history, with estimated US$1 billion in industry losses.
2021 is one of the top most costly years in terms of disaster events, with estimated industry losses close to $150 billion.
INTACT FINANCIAL CORPORATION 41
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 17 - Seasonality of our P&C insurance business
The P&C insurance business is seasonal in nature. While NEP are generally stable from quarter to quarter, underwriting results are
driven by weather conditions which may vary significantly between quarters.
The tables hereafter present the seasonality indicators of each of our geographical P&C segments. A higher seasonality indicator
indicates a relatively less profitable underwriting result.
P&C Canada
Q1 usually sees a higher combined ratio (including and excluding CAT losses) than the other quarters, driven by harsh winter
weather conditions.
Table 23 – Unfavourable (favourable) seasonal indicators - in points of combined ratio
P&C Canada
2021
2020
2019
2018
3-yr average
5-yr average
10-yr average
Excluding CAT losses
Q1
Q2
Q3
Q4
P&C UK&I
4.4 pts
(0.8) pts
(0.8) pts
(2.9) pts
5.2 pts
(1.0) pts
0.1 pts
(4.3) pts
5.2 pts
2.5 pts
(2.6) pts
(5.1) pts
7.0 pts
(2.0) pts
(2.4) pts
(2.6) pts
5.0 pts
0.2 pts
(1.1) pts
(4.1) pts
5.1 pts
(0.3) pts
(1.8) pts
(3.0) pts
3.8 pts
(0.4) pts
(2.1) pts
(1.3) pts
The seasonality impact is less pronounced than in Canada, given that the UK&I has a higher concentration in commercial lines and
relatively milder winter weather. Historical data is shown below, though it is difficult to identify strong seasonality trends. Weather in the
second quarter tends to be more benign, although 2021 included the impact of the Texas storms and the Australian floods.
Table 24 – Unfavourable (favourable) seasonal indicators - in points of combined ratio
P&C UK&I
Excluding CAT losses
Q1
Q2
Q3
Q4
P&C US
2021
2020
2019
2018
5.0 pts
3.5 pts
(8.0) pts
(0.5) pts
(0.7) pts
(6.4) pts
5.2 pts
1.9 pts
1.8 pts
(6.3) pts
2.6 pts
1.9 pts
1.7 pts
(14.4) pts
6.5 pts
6.2 pts
The impact of seasonality is relatively limited when excluding CATs, which tend to fluctuate in specialty lines.
Table 25 – Unfavourable (favourable) seasonal indicators - in points of combined ratio
P&C US
Excluding CAT losses
Q1
Q2
Q3
Q4
2021
2020
2019
2018
(1.0) pts
0.9 pts
(0.8) pts
0.9 pts
(3.7) pts
(0.3) pts
2.9 pts
1.1 pts
0.9 pts
1.7 pts
3.0 pts
(5.6) pts
2.1 pts
0.4 pts
0.1 pts
(2.6) pts
42 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
STRATEGY
Section 18 - What we are aiming to achieve
As we continue our journey to becoming a Speciality Solutions leader, we recognize the importance expertise plays in providing our
customers a specialized value proposition from product design to claims know-how. Our brokers are an essential partner who bring
that expertise to customers, so we’ve added a new strategic objective that underscores how important it is that our brokers value our
specialized expertise.
As a purpose-driven business, we are here to help people, businesses and society prosper in good times and be resilient in bad times.
Being a most respected company requires performance across all aspects of what we do – including our impact on society. Cl imate
change is an existential risk and will require our focus in doing our part by achieving Net Zero by 2050. We’re building a framework
that will concretely measure our effectiveness in transitioning to Net Zero and intend to use our strengths as a leader to accomplish
this.
Section 19 - Our strategic roadmap for the next 10 years
INTACT FINANCIAL CORPORATION 43
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 20 - Progress on our strategic roadmap
With the RSA Acquisition, we are taking a significant step to accelerate our strategy. Please refer to our website at www.intactfc.com
for further information related to this acquisition. In addition, we are making significant progress on our key strategic initiatives, as
outlined below.
Expand our leadership position in Canada
• Digital engagement continues to be strong in Canada. In 2021, we achieved a 30% increase in mobile app log-ins and
23% growth in Client Centre account registrations demonstrating a growing level of digital engagement with customers.
• Updated versions of both the belairdirect and Intact Insurance mobile apps were launched to improve the customer
experience, introduce new value-added features, and to enable further adoption of our telematics program.
• BrokerLink had another record year, closing more than 20 transactions expanding their reach coast to coast and doubling
their size in Atlantic Canada to become one of the largest brokerages on the East Coast. They also achieved all-time highs in
customer satisfaction.
Strengthen our leading position in the UK & Ireland
•
•
In the UK, a strategic review continues to develop a mid-term roadmap that will position the business for outperformance.
Top priorities for the business: strengthen pricing sophistication, capitalize on opportunities in the mid-market and regions,
and invest in technology to increase the business’ agility.
Build a Specialty Solutions leader
•
•
The addition of RSA’s London Market and European operations to Intact’s Global Specialty Lines marked another key
milestone in our transition from a North American to a truly global platform. This step will broaden our distribution footprint and
product set, provide existing specialty franchises access to new regions, and ensure that customers and brokers can benefit
from the full breadth of specialized expertise across the organization.
The global specialty lines market is estimated at close to $500 billion in annual premiums. Through platforms in the US,
Canada, London Market, and Europe, our Global Specialty Lines organization has the ability to access roughly 70% of that
volume. In addition, the Global Network allows us to service multi-national customers with exposures extending beyond those
four platforms.
Operating DPW1
Canada
UK&I
US
42%
$4.8B
32%
26%
Global specialty lines
In 2021, we generated close to
$5 billion in operating DPW
(proforma) and delivered a solid
combined ratio of 89.2%.
Operating combined ratio1
Canada
UK&I
US
.
%
9
2
% 9
3
.
7
8
%
1
.
6
8
%
2
.
9
8
Global
Operating DPW (proforma) include the impact of the RSA Acquisition for a full year, which is a better indication of our
annual premiums and profitability. Figures above have been aggregated, using management reports from each segment,
and are based on the current definition of specialty lines, which may change over time.
44 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Transform our competitive advantages
•
•
•
The Data Lab continued to rapidly develop and deploy data and AI applications throughout our business with over 200
models in production. Key deliveries were in claims to accelerate cycle times, in sales to reduce time required for call quality
control, and in improvements to existing tools used for pricing and Investment Management. Additionally, a newly formed Data
Lab team is now dedicated to pricing sophistication for our UK&I business.
Throughout the year, OnSide continued to expand its footprint in Canada and played a critical role during an active
natural CAT year, helping Intact reach record NPS scores for claims services provided during catastrophes.
In November, Intact Ventures participated in the Series C funding round of Resilience Insurance. As Resilience
Insurance continues to gain scale in the cyber market, our strategic partnership supports growth and profitability within our
specialty lines cyber vertical.
Invest in our people
•
•
Intact has been named a Kincentric Best Employer in Canada, the US, and North America for 2021. Kincentric awards
employers based on employee engagement, agility, engaging leadership, and talent focus. This is the sixth consecutive year
for Canada, and the third consecutive year for the US.
In addition to the appointment of a new CEO of UK&I, changes were made in the UK&I structure in commercial lines,
specialty lines and underwriting teams to ensure that the right talent and structure are in place to execute and deliver on
our strategic roadmap.
Governance
•
For the second year in a row, we tied as a top-ranking company in the 2021 Globe and Mail Board Games rankings, scoring
98 points out of a possible 100. Board Games evaluates the quality of governance practices and disclosure for Canadian
publicly traded companies
• Continued to strive for diversity in management, in line with our commitments to the 30% Club and the Catalyst Accord.
Our Board of Directors had 38.5% female representation in 2021.
• Received over 97% approval on the advisory resolution on executive compensation (say-on- pay) at the 2021 annual and
special meeting of shareholders.
See Section 23 – Climate change for more details. More information on IFC’s Social Impact & ESG performance will be available
in our 2021 Social Impact Report.
Section 21 - Acquisition of RSA’s Canadian, UK and International
operations
21.1 Highly strategic, with significant shareholder value creation
On June 1, 2021, together with the Scandinavian P&C leader Tryg A/S, we completed the acquisition of RSA Insurance Group plc.,
following all required approvals. RSA is a multinational insurance group with strong positions in the P&C insurance market in the UK,
Scandinavia and Canada along with supporting international business in Ireland, Europe and the Middle East. Pursuant to the RSA
Acquisition, we will retain RSA's Canadian, UK and International operations and Tryg will retain RSA’s Swedish and Norwegian
businesses. On June 11, 2021 we announced the sale of Codan DK to Alm. Brand A/S Group, representing proceeds of DKK 6.3 billion
($1.3 billion) for our 50% stake. We expect the transaction to close in H1-2022.
With the RSA Acquisition, we took a significant step to accelerate our strategy. The acquisition expands our leadership position in
Canada, creates a leading specialty lines platform with international expertise, and provides entry into the UK and Ireland markets at
scale. The acquisition also strengthens our ability to outperform with increased investment in our core capabilities of data, risk selection,
claims and supply chain management. The RSA Acquisition will create significant value for our shareholders. See Section 21.2 –
Integration and transition.
INTACT FINANCIAL CORPORATION 45
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Expands our leadership
position in Canada
Creates a leading
specialty lines platform
Entry into the UK &
Ireland at scale
Financially compelling
21.2
Integration and transition
Integration and transition are progressing very well across all geographies.
Key
updates
Q4-2021 update
• RSA contributed close to 16% accretion to Q4-2021 NOIPS and 12% for the seven-month period since closing.
The NOIPS accretion takes into account the RSA earnings contribution, net of financing expenses, and the
offset from share dilution due to the equity financing. Given the overall strength of Intact’s results, this is evidence
of the quality of the acquired portfolio. We have increased confidence in achieving our target of high single-digit
accretion in the first 12 months and upper teens within 36 months.
•
Ken Norgrove was appointed to the role of CEO of UK&I, effective January 10, 2022, subject to regulatory
approval. He was formerly CEO of RSA Scandinavia from 2019 until deal completion, and led the very
successful turnaround of the Irish business as CEO of RSA Ireland from 2014 to 2019. Ken brings more than
35 years of experience in the insurance industry, with 30 years at RSA.
• On October 6, 2021, we entered into a reinsurance agreement to provide protection for adverse development
in UK&I claims liabilities for 2020 and prior years. The net cost of $71 million was included in Acquisition,
integration and restructuring costs in Q4-2021.
Value
creation
• We remain on track to realize at least $250 million of pre-tax annual run-rate synergies (before loss ratio
improvements) over the next three years. As at December 31, 2021 we have delivered $85 million in run-rate
synergies, ahead of our initial schedule. While actions taken in the next 12 to 24 months remain critical to
exceeding our initial target, we are optimistic that the timing of synergies might be earlier than anticipated.
• We continue to expect approximately 75% of total synergies to be generated in Canadian operations with the
remainder in UK&I and specialty lines.
Integration
progress
o
o
o
In Canada, claims internalization, shared services integration and associated system shutdowns
will drive the majority of the expense savings.
In UK&I, we are generating expense synergies from prior RSA group costs, publicly listed related
costs as well as capital, reinsurance and tax optimization.
In specialty lines, we are identifying opportunities to strengthen the combined international
platform and introduce our proven governance and profitability model.
•
•
•
•
•
•
In addition to expense synergies, we expect to generate additional value by applying our core competencies in
pricing and risk selection, digital, as well as data and AI. This additional value is not included in our disclosed
financial metrics.
In Canada, policy conversion in the broker channel is well underway as planned for personal lines for almost all
provinces, as well as commercial lines small business insurance with effective dates of October 1st onward.
Over 40% of Personal Lines broker policies, and nearly 40% of Commercial Lines small business and fleet
policies, have converted to Intact systems to date. Early views on retention are aligned with or better than
historical RSA experience. We will continue to monitor this.
The complex Canada commercial and specialty lines conversions will be staggered throughout 2022 by line of
business and segment, with good progress on product and vertical plan development.
In direct distribution, the Johnson integration is targeted to begin in early 2022, with a focus on the customer
journey and digital capabilities. Engagement with affinity partners similarly remains strong.
In claims, there is continued work on internalizing and integrating claims back-office and after-hours operations,
leveraging On Side as well as refining the conversion roadmap.
In UK&I, we have identified the top priorities to be strengthening pricing sophistication, capitalizing on
opportunities in the mid-market and regions, and investing in technology to increase the business’ agility.
For more details, see Section 7 – UK&I, Section 26 – Claims liabilities and reinsurance, and Sections 30-35 – Risk Management.
46 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 22 - Progress on our two financial objectives
22.1 Exceed industry ROE by 5 points
Outperforming the industry ROE by 500 basis points annually is one of IFC’s key financial objectives (see Section 18 – What we are
aiming to achieve). This is measured by comparing IFC’s AROE to the weighted average of the industry ROEs for each country. The
industry weighted average is calculated by applying the relevant country weights based on the amount of capital deployed by IFC in
each country.
The P&C industry performance comparison below is for North America only, as it reflects time periods prior to the RSA Acquisition. The
Canada industry data is based on MSA and assigned an 80% weighting. The US industry data is based on NAIC statutory filings for
the top 200 US P&C insurance entities and assigned a 20% weighting. Effective in 2021, the P&C industry performance comparison
will be expanded to include the UK&I segment.
Table 26 – P&C industry (North America) – IFC outperformance (underperformance)
North America
ROE (for the last 12 months)
IFC
Canada Industry
US Industry
North American industry
Outperformance
Weighting
Full year
2020
Full year
2019
Full year
2018
80%
20%
100%
15.0%
9.3%
5.6%
8.6%
11.4%
11.8%
5.6%
8.2%
6.1%
2.8%
6.1%
3.5%
6.5 pts
5.3 pts
8.3 pts
2020 full year
relative
performance
• Compared to the North American P&C industry, our ROE outperformed by 650 basis points, above
our target of 500 basis points. Our ROE outperformance was driven by a combination of strong underwriting
results, efficient capital and investment management and healthy distribution income.
22.2 Grow NOIPS by 10% yearly over time
NOIPS performance over time (in dollars)
CAGR of 29% (2018-21), 20% (2016-21) and 12% (2011-21)
12.41
9.92
5.00
3.91
3.62
5.67
6.38
4.88
5.60
5.74
6.16
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
• Growing NOIPS by 10% yearly
over time is one of IFC’s key
financial objectives (see Section
18 – What we are aiming to
achieve).
• During the past decade, we
grew our NOIPS at a CAGR of
12%, better than our target.
The RSA Acquisition is expected to create significant value for our shareholders.
•
• We have increased confidence in achieving our target of high single-digit accretion in the first
12 months and upper teens within 36 months.
INTACT FINANCIAL CORPORATION 47
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 23 - Climate change
Over the past decade, we have made significant progress in preparing Intact and helping society anticipate the consequences of climate
change. As natural disasters have increased by a factor of four in the past 30 years this effort was – and still is – existential. Despite
the inherit challenges, there are also tailwinds. Climate change presents an opportunity to both help society manage the impacts and
for IFC to win in the marketplace with innovative products and services.
In the months following COP26, there is momentum and urgency on the world stage to address climate change and its impacts. Many
countries, including Canada, the US and UK, have committed to achieve net zero emissions in the next 30 years to keep average
temperature increases to less than 2°C. To reach these targets, we need an all-of-society approach including governments, businesses
and individuals.
Until we reach net zero emissions, we will continue to face more extreme weather; building resilient communities is therefore essential.
We have invested heavily to help society be better prepared. We created the Intact Centre on Climate Adaptation in 2015 and have
renewed its mandate through to 2025. To back our research with concrete actions, we have supported more than 90 projects through
climate adaptation grants across Canada. Beyond our expertise and resources, we have committed more than $16 million to support
these ideas since 2010.
Our response to climate change is an opportunity for us to leverage our strengths and platform to shape behaviour through the products
we offer, how we price and select risk, and by supporting the transformation of existing and new industries. We have a proven track
record of helping our communities while building sustainable performance. We see a unique opportunity for Intact to use our expertise,
scale, data, and financial resources to accelerate solutions to help us both win in the marketplace and help build a climate resilient
society.
23.1 Governance
The Enterprise Risk Management Committee identified climate change as one of our top ten risks for our company. Climate risk is
incorporated into Enterprise Risk Management Strategy, which is integrated into all business activities and strategic planning, including
subsidiaries and operations. This framework includes the identification, assessment, response, monitoring and reporting of risks.
Climate risks are regularly discussed with the leadership of commercial, personal and specialty lines of business to ensure proper risk
assessment and mitigation plans are in place. See Section 33.6 – Top and emerging risks that may affect future results.
Within our Board of Directors, climate change is an integral accountability of the Board’s Risk Management Committee. This Committee
oversees the assessment and monitoring of the risks related to climate change, including the potential impact of insured losses resulting
from damage to property and assets arising from climate related natural catastrophe events, and the development of strategies to
manage these risks. The Board is fully engaged in shaping the approach to Enterprise Risk Management, including setting our risk
appetite where appropriate and ensuring governance structure and policies are effective.
Our Senior Management team, including our CEO, provides direct leadership on our climate change initiatives and advocates publicly
for climate adaptation with business associations, government officials, regulators and globally in his recent role as the Board Chair of
The Geneva Association. A newly created role of Chief People, Strategy and Climate Officer was created in 2021 to ensure ongoing
integration of climate change and climate risk management into our central strategy.
23.2 Climate Strategy
Our strategy to manage climate change risks focuses on our expertise, scale and resources to address all aspects of climate change
including the transition to net zero. The transition to a low-carbon economy cannot be an all-or-nothing approach. We play an integral
role in enabling innovation and the transition to a sustainable future continues to be an opportunity for us to help facilitate a prosperous
and climate resilient economy.
Our plan for the transition to a low-carbon economy focuses on the following principles:
• We will help people, businesses, and society de-risk the transition to a sustainable future, by leveraging our strengths.
• We will take an inclusionary approach to supporting our stakeholders, not an exclusionary one.
• We will focus our actions on areas that maximize the overlap between helping and winning.
48 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
We will leverage our strengths and help society by:
• Committing to Net-Zero emissions by 2050 and halving operations emissions by 2030.
• Doubling down on helping people and society adapt to climate change.
•
• Helping to catalyze the transition by enabling the transformation and creation of industries.
• Collaborate with governments and industry to help accelerate climate action.
Leveraging our platform to shape behaviour.
More details will be available in our 2021 Social Impact Report.
23.3 Approach to managing physical impact
Physical risks have an impact on our P&C business. We continue to adapt our business to the impacts of climate change. Over the
years, we have implemented several actions to manage the potential impact of changing weather patterns including improved risk
selection, pricing, product changes, supply chain enhancements and a greater emphasis and investment on prevention.
For the Company, our response to climate change has long been embedded in our strategy and our approach to risk management.
We use our expertise to keep pace with an evolving climate. To accomplish this, we:
• Maintain an adequate capital margin to ensure that we are sufficiently capitalized to withstand an
acceptable level of insurance and/or market shocks.
• Enhance segmentation to understand evolving risks. We input weather, climate and topographic data into
machine learning models to develop risk maps to assess risk to weather perils such as flood and wildfire.
• Review current personal and commercial line products, underwriting and pricing practices related to
severe weather.
Risk selection &
pricing
• Continuously redefine how we select and price risk with data and predictive analysis, leveraging the
expertise of 300 AI and Machine Learning experts. We set risk tolerances based on catastrophe model
output and use it to determine pricing.
•
Implement rate changes in our property business to reflect recent trends in catastrophes and severe
weather.
• Reinsure certain risks to limit our losses in the event of a catastrophe or other significant weather-related
losses. Below our catastrophe cover, we purchase specific treaties for business that are more exposed to
major events and use facultative and per risk reinsurance to limit exposure on any one risk. More
information can be found in Section 33.6 – Top and emerging risks that may affect future results.
Product
• Continually evolve our products to account for new climate realities, such as unbundling our enhanced
water damage product to make protection more accessible.
•
Transform our business to adapt to evolving climate risks. For example, we redesigned our personal
property business to account for an increased risk of flood.
Supply chain &
claims support
enhancements
• Capitalize on opportunity in climate change by expanding our supply chain capacity through the acquisition
of On Side, one of the largest players in restoration in Canada.
• Use actuarial tools and have actuaries in claims support operations to quickly assess CATs (including the
number of claims, nature of claims, geo-coded maps & supply-chain requirements).
• Engage with investees on climate change resiliency and the integration of climate change into strategy
and governance measures .
Intact Investment
Management
(IIM)
• Discuss the impacts of extreme weather events on financial performance and ensure management is
accounting for climate change as a key risk.
• Voted on 253 shareholder proposals related to ESG matters in 2021, of which 12% were focused on
climate change disclosure and GHG emissions.
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Helping our customers get back on track after a severe weather event and become resilient to the impacts of climate change is
imperative to our success in managing physical risks effectively. To do this, we:
•
•
•
Invest a global loss prevention team with vast backgrounds, including engineers, fire protection experts,
sprinkler designers, brokers, claims adjusters and underwriters.
Include weather alerts in our apps to proactively inform clients on preventive tips they can take to protect
their homes and avoid potential automobile accidents caused by bad weather conditions.
Increase our customer and distribution partner education and awareness efforts, including providing
climate-related tips featured in our BrokerLobby.
• Communicate specific tips on climate resilience to customers in high-risk geographies.
• Use data to help prevent losses from occurring. For example, we have developed a forecast system that
automatically detects which customers are at risk of roof collapse after a significant snowfall. We provide
subsidies to our customers to remove snow and prevent damage.
• Work with partners, such as the University of Waterloo, our industry association the Insurance Bureau of
Canada and the global insurance industry think tank The Geneva Association, to promote climate change
adaptation initiatives at all levels of government.
•
•
•
Invest in addressing supply chain shortages during extreme weather events and enhancing our excellent
customer service through the acquiring of On Side Restoration. On Side has the capacity to mobilize
employees quickly between regions and to add capacity in impacted areas.
Advance our products to account for new climate realities and increase the flexibility of protection for our
customers.
Employ nearly 5,000 claims professionals in Canada, dedicated helping customers get back on track – we
manage at least 95% of customers’ claims in house.
• Have designated catastrophe response teams across the country to deal efficiently with CAT events. We
have connected our claims teams from coast-to-coast to ensure service reliability for our customers.
• Work with Industry and the Canadian Federal government as a member of the Task Force on Flood
Insurance and Relocation.
•
The task force’s mandate is to examine viability of a low-cost national flood insurance program as well as
options for potential relocation for residents in areas at the high risk of recurrent flooding.
• RSA joined 18 financial service firms to participate in the Bank of England’s Climate Biennial Exploratory
Scenario (“CBES”), which explored risks posed by climate change and tested the resilience of the financial
services sector.
•
Insurance sector participants focused on physical and transition risk impacts on assets and insurance
liabilities, with aggregated results available in May 2022.
• RSA completed detailed scenario analysis to determine the material financial impact of climate risk.
• The process of completing the CBES submission helped validate and update RSA’s climate change action
plan.
Prevention
Products and
claims
Canadian
Federal
Government
Flood Task
Force
Bank of England
Climate Biennial
Exploratory
Scenario (CBES)
50 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
23.4 Approach to managing transition impact
The transition to a Net Zero economy requires all of society to rethink how is operates – it’s critical we take a thoughtful approach to
support people and protect the economy. With our risk management and climate resilience expertise, we have a role to play to help de-
risk the transition and help accelerate behavioural change.
•
•
Joined Climate Engagement Canada as a founding member, to drive dialogue with Canadian issuers
about climate risks and opportunities.
Adopted and implemented positions on coal in 2020 and oil and gas in 2021, focused on supporting the
energy sector transition to a low-carbon economy.
• Will assess the climate disclosure and transition plans for all companies in our investment universe that:
o
o
o
generate more than 25% of revenue from thermal coal mining;
derive more than 25% of energy generation, revenue or net income from thermal coal; and
are included in the top GHG emitters from the oil and gas sector.
• Will engage with investee companies who do not have satisfactory transition plans and expect tangible
improvements.
• Will remove companies who are non-responsive or do not provide evidence of progress on their transition
plan from our investment universe within a communicated timeline.
•
•
•
•
•
•
•
In 2021, Intact was one of four insurance companies selected to participate in a pilot project to use climate
change scenarios to understand transition risks related to a low-carbon economy.
The pilot enhanced our internal analysis and understanding of potential impacts of transition risk on
specific industries within our asset portfolio.
It confirms the benefits of our diversified, high-quality portfolio as well as our investment policy to invest in
companies with strong transition plans.
Furthermore, the short-term nature of our business allows us to quickly take actions with limited impact
and adjust accordingly our security selection, sector/segment allocation and asset mix when we see
evolving climate risk trend.
The pilot reinforces the need to favor companies that will address the climate transition with urgency.
It shed light on the risks of significant macroeconomic impacts, in particular for commodity-exporting
countries like Canada. The economic impacts for Canada are driven mostly by declines in global prices of
commodities rather than by domestic policy decisions.
To support the transformation of industries that are key to the transition, we developed a climate risk
assessment survey for the underwriting process across commercial, personal and global specialty lines of
business.
• This annual survey works with leaders to identify, assess, measure and monitor on climate risks and
identify opportunities in our insurance business.
Intact Investment
Management
(IIM)
Bank of
Canada/OSFI
Transition Risk
Pilot
Underwriting
INTACT FINANCIAL CORPORATION 51
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
23.5 Climate Change Adaptation
Our support of initiatives in climate adaptation continued to accelerate in 2021, with increased investments in applied research and
community level projects to demonstrate the concrete benefits of resilience.
We renewed our investment in the Intact Centre on Climate Adaptation at the University of Waterloo, an applied research centre
establishing best practices to help homeowners, communities, governments and businesses identify and reduce the impacts of extreme
weather and climate change – including flood, fire, and extreme heat. Their research is used to help society adapt effectively, including
informing flood resilient building standards as well as developing a climate resilience curriculum for home inspector training.
•
In 2021, the Intact Centre released two critical reports, including:
o Rising Seas and Shifting Sands: Combining Natural and Grey Infrastructure to protect Canada’s Eastern and Western
Coastal Communities, which outlines measures that can be used to protect coastal communities; and
o Climate Change and the Preparedness of 16 Major Canadian Cities to Limit Flood Risk, which examined the preparedness
of 16 major Canadian cities to mitigate flood risk.
• We continue to bring our expertise to support a number of Canadian Federal Government roundtables and committees, including:
o CEO Charles Brindamour, joining the Canadian Government delegation to COP26;
o CFO Louis Marcotte, as Lead of the Data Technical Experts Group on the Federal government Sustainable Finance
Action Council, which aims to build a sustainable financial system in Canada; and
o Executive Advisor Alain Lessard, joining the Federal government Disaster Resilience Advisory Table, which will contribute
to the development of a National Adaptation Strategy.
• RSA donated £295,000 to 43 organizations across the UK through its Climate and Risk Education Grant Programme, focused on
reducing carbon emissions, supporting risk education and behaviour change.
• We launched a new $1 million Municipal Climate Resilience Program to build the resilience of the front lines of our communities
across Canada. More information on these partnerships is available in our 2021 Social Impact Report.
It is critical that society adapts to climate change. While we have adopted an all-of-company approach to managing climate risks,
addressing climate change requires an all-of-society approach to protect our communities and our economy.
More information related to our initiatives on climate change, including information related to the Task Force on Climate-related
Financial Disclosure (TCFD) will be available in our 2021 Social Impact Report.
52 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
FINANCIAL CONDITION
Section 24 - Financial position
2021
Total assets
Investment portfolio
$66.3 billion
$36.7 billion
BVPS growth
for the last 12 months
+40%
Adjusted debt-to-total
capital ratio
23.0%
24.1 Balance sheets
On June 1, 2021, we, together with the Scandinavian P&C leader Tryg A/S, completed the RSA Acquisition. Subsequently, on June 11,
2021, we announced that together with Tryg we had entered into a definitive agreement to sell RSA’s Danish business to Alm. Brand
A/S Group. As a result, our investment in RSA’s Danish operations is presented as held for sale in our Consolidated balance sheets.
See Note 5 – Business combination to the Consolidated financial statements for further details.
Table 27 – Balance sheets
As at
Assets
Investments
Premiums receivable
Reinsurance assets
Deferred acquisition costs
Intangible assets and goodwill
Other assets
Assets held for sale
Total assets
Liabilities
Claims liabilities
Unearned premiums
Debt outstanding
Other liabilities
Total liabilities
Equity
Common shares
Preferred shares
Contributed surplus
Retained earnings
AOCI
Equity attributable to shareholders
Equity attributable to NCI
Total equity
Section
December 31,
2021
September 30,
2021
2 0
December 31,
2020
25
26.2
26.1
28.3
36,680
7,838
5,616
2,024
7,702
5,647
842
66,349
25,116
11,703
5,229
7,518
49,566
7,576
1,175
211
6,183
529
15,674
1,109
16,783
36,625
7,916
5,736
2,060
7,645
5,332
859
66,173
25,006
12,006
5,324
7,592
49,928
7,576
1,175
197
5,600
575
15,123
1,122
16,245
20,630
3,822
1,533
1,089
5,327
2,718
-
35,119
12,780
6,256
3,041
3,459
25,536
3,265
1,175
187
4,547
409
9,583
-
9,583
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 25 - Investments and capital markets
25.1 Strategic objectives
Our approach to investment management continues to reflect our objective of:
• maximizing after-tax returns, while preserving capital and limiting volatility, based on our risk profile, and
•
outperforming our peers’ investment returns over the long-term, while ensuring policyholder protection and maintaining strong
regulatory capital levels.
We continue to manage our investment portfolio to achieve these objectives via appropriate asset allocation and active management
investment strategies, while minimizing the potential for large investment losses with diversification and limits on our investment
exposures. Such limits are specified in our investment policies and are designed to be consistent with our overall risk tolerance.
Management monitors and ensures compliance with our investment policies.
Our investment management team has established the optimal mix of our consolidated investment portfolio to account for the RSA
Acquisition, taking into account factors such as risk, return, capital, regulations and tax. Board-approved risk appetite statement
remained unchanged following the RSA Acquisition.
Execution on the roadmap started in H2-2021, with the transition of RSA’s Canadian investment portfolio to our Canadian investment
strategy, introduction of a common shares strategy in UK&I and the addition of private credit investments that offer attractive yields and
lower volatility. Changes to the asset mix will continue to occur gradually. Pace may vary based on market conditions and opportunities.
The fixed-income portfolio yield of RSA has been reset at the closing date. Over time, we expect to see opportunities to increase our
investment income via higher reinvestment yield.
25.2 $36.7 billion of diversified investments
Table 28 – Investment portfolio
As at
Cash, cash equivalents
Short-term notes
Fixed-income securities
Preferred shares
Common equities
Investment property
Loans
Total investment portfolio
By geography (country of incorporation)
Canada
US
UK
Other
December 31, 2021
September 30, 2021 December 31, 2020
2,276
516
24,791
1,847
5,686
634
930
36,680
55%
19%
11%
15%
100%
3,014
520
24,436
1,923
5,194
552
986
36,625
54%
19%
12%
15%
100%
917
684
13,414
1,552
3,779
-
284
20,630
72%
27%
-
1%
100%
•
The increase of $16.1 billion in 2021 reflected the addition of RSA’s investment portfolio, as well as mark-to-market gains,
driven by favourable equity markets (see Section 25.5 – Capital market update).
REMINDER: At closing (June 1, 2021), the RSA acquisition added $14.3 billion to our investment portfolio distributed across
various geographical locations. As a result, our investment portfolio benefits from further diversification. Refer to Section 14.1
- RSA’s investment portfolio at a glance of our Q2-2021 MD&A for more details.
54 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
25.3
Investment portfolio net exposure
As part of our investment strategies, from time to time we take long/short equity positions in order to maximize the value added from
active equity portfolio management, or to mitigate overall common share market volatility. We also use strategies where market risk
from long common share positions is reduced through the use of swap agreements or other hedging instruments.
Our net exposure as at December 31, 2021 (after reflecting the impact of hedging strategies related to investments and foreign
subsidiaries) is outlined below.
Table 29 – Investment mix (net exposure)
As at
By asset class
Cash, cash equivalents, and short-term notes
Fixed-income strategies
Preferred shares
Common equity strategies
Investment property
Loans
By currency
CAD
USD
GBP
Other currencies
December 31,
2021
September 30,
2021
December 31,
2020
9%
72%
5%
9%
2%
3%
68%
14%
14%
4%
11%
71%
5%
8%
2%
3%
68%
14%
13%
5%
10%
72%
7%
10%
-
1%
85%
15%
-
-
• Changes in asset mix reflects the execution of the roadmap in 2nd half of 2021 with deployment of cash and cash equivalents
in the Canadian fixed income portfolio (including additional private credit investments) and common shares in UK&I.
• Exposure to GBP and other currencies (mainly EUR) is related to our newly acquired business.
Net sectoral exposure
Table 30 – Sector mix by asset class, excluding cash, short-term notes and loans (net exposure)
As at
Fixed-income
securities
Preferred
shares
Common
shares
Total
Dec. 31,
2021
Total
Sept. 30,
2021
Total
Dec. 31,
2020
Government
Financials
ABS and MBS1
Industrials
Consumer staples
Communication Services
Utilities
Consumer discretionary
Energy
Materials
Information technology
Health care
36%
28%
15%
4%
2%
2%
4%
2%
1%
1%
2%
3%
-
71%
-
-
-
5%
12%
-
12%
-
-
-
-
27%
-
8%
8%
8%
11%
8%
12%
9%
4%
5%
28%
34%
12%
4%
3%
3%
5%
2%
3%
1%
2%
3%
28%
36%
11%
3%
3%
3%
5%
2%
3%
1%
2%
3%
32%
32%
11%
3%
3%
3%
5%
1%
3%
1%
3%
3%
1 Our structured debt securities comprised $1,302 million of ABS and $2,354 million of MBS as at December 31, 2021. Residential MBS and Commercial
MBS make up respectively 50% and 50% of our MBS portfolio. Approximately 99% of these structured debt securities are rated ‘A’ or better. We
continue to have no exposure to leveraged securities.
100%
100%
100%
100%
100%
100%
• RSA’s investment property portfolio is unlevered, diversified in terms of sectors (office, commercial and industrial) and
geography within UK.
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
25.4 Our portfolio remains of high quality
The addition of RSA investmen ts did not affect high credit quality of the portfolio and only impacted marginally duration.
Our fixed-income portfolio includes high quality Government and corporate bonds. Approximately 83% of our fixed-income
portfolio was rated ‘A-’ or better as at December 31, 2021 (89% as at December 31, 2020). On a consolidated basis, the weighted-
average rating of our fixed- income portfolio was ‘AA’ as at December 31, 2021 and 2020. The average duration of our fixed-income
portfolio was 3.52 years as at December 31, 2021 (3.74 years as at December 31, 2020).
Our preferred share portfolio is made up of high-quality Canadian issuers. The weighted-average rating of our preferred share
portfolio was ‘P2’ as at December 31, 2021 and 2020.
25.5 Capital market update
While the correlation between the performance of capital markets and the performance of our investment portfolio is not perfect, the
following market indicators may be useful in understanding the overall performance of our investment portfolio. See Section 10.1 – Net
investment income and Section 10.3 – Net gains (losses) excluding FVTPL bonds.
Table 31 – Selected market indicators
Selected market Indicators
Common shares
S&P/TSX Composite
S&P/TSX Financials
DJ Dividend 100 Composite (US)
Preferred shares
S&P/TSX Preferred Share Index
Fixed-income securities (estimated variance in bps)
5Y Canada Sovereign Index
5Y US Sovereign Index
5Y UK Sovereign Index1
5Y AA Corporate spread
Strengthening (weakening) of:
USD vs CAD
GBP vs CAD1
Q4-2021
Q4-2020
2021
2020
6%
8%
9%
-%
25 bps
30 bps
17 bps
9 bps
-%
(0.5)%
8%
15%
16%
6%
3 bps
8 bps
n/a
(14) bps
(4)%
n/a
22%
32%
26%
14%
83 bps
90 bps
47 bps
19 bps
(1)%
(0.4)%
2%
(3)%
11%
-
(136) bps
(133) bps
n/a
(12) bps
(2)%
n/a
1 2021 represented the change from the closing of the RSA Acquisition (June 1, 2021) to December 3 1, 2021.
56 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
25.6 Net pre-tax unrealized gain (loss) on AFS securities
Table 32 – Net pre-tax unrealized gain (loss) on AFS securities
As at
Fixed-income securities
Preferred shares
Common shares
Net pre-tax unrealized gain (loss) position
Quarter
Dec. 31,
2021
Sept. 30,
2021
June 30,
2021
March 31,
2021
Dec. 31,
2020
30
171
421
622
129
179
395
703
159
96
251
506
297
(8)
224
513
190
151
342
683
Full year
Unrealized gain position decreased by $81 million, mainly
driven by:
Unrealized gain position increased by $109 million, driven by:
• mark-to-market gains on equity securities, due to favourable
• mark-to-market losses on fixed-income securities, due to
equity markets in 2021;
the increase in interest rates; and
•
realized gains on equity securities;
partially offset by:
partially offset by:
• mark-to-market losses on fixed-income securities, due to the
increase in interest rates and widening spreads; and
• mark-to-market gains on equity securities, due
to
•
realized gains on equity securities.
favourable equity markets in Q4-2021.
25.7 Aging of unrealized losses on AFS common shares
Table 33 – Aging of unrealized losses on AFS common shares
As at
Less than 25% below book value
More than 25% below book value for less than 6 consecutive months
More than 25% below book value for 6 consecutive months or more,
but less than 9 consecutive months
Unrealized losses on AFS common shares
Dec. 31,
2021
Sept. 30,
2021
June 30,
2021
Mar. 31,
2021
Dec. 31,
2020
52
2
-
54
38
4
3
45
23
117
-
140
25
102
-
127
66
-
-
66
Highlights
•
•
•
•
In Q4-2021, we recorded $4 million of impairment on AFS common shares, compared to $22 million in Q4-2020.
In Q4-2021, we recorded $7 million of impairment on AFS debt securities (none in Q4-2020).
In 2021, we recorded $85 million of impairment losses on AFS common shares, mostly related to a venture investment,
compared to $121 million in 2020 (of which $96 million in Q1-2020). In addition, we recorded $7 million of impairment on AFS
debt securities (none in 2020). See Table 15 – Net gains (losses) excluding FVTPL bonds.
Since AFS investments are measured at fair value on our balance sheet, impairment losses have no impact on our BVPS and
capital position.
INTACT FINANCIAL CORPORATION 57
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 26 - Claims liabilities and reinsurance
26.1 Claims liabilities
Assumptions
Claims liabilities stood at $25.1 billion as at December 31, 2021, following the RSA Acquisition.
The main assumption underlying the claims liability estimates is that our future claims development will follow a similar pattern to
past claims development experience. Claims liability estimates are also based on various quantitative and qualitative factors,
including:
•
•
•
•
•
•
•
•
average claims cost, including claim handling costs (severity);
average number of claims by accident year (frequency);
trends in claims severity and frequency;
payment patterns;
inflation, including social inflation;
other factors such as expected or in-force government pricing and coverage reforms, and level of insurance fraud;
discount rate; and
risk margin.
The total claims reserve is made up of two main elements:
•
•
reported claims case reserves, and
incurred but not reported (“IBNR”) reserves.
IBNR reserves supplement the case reserves by taking into account:
•
•
•
possible claims that have been incurred but not yet reported to us by policyholders;
expected over/under estimation in case reserves based on historical patterns; and
other claims adjustment expenses or subrogation amounts not included in the initial case reserve.
Case reserves and IBNR should be sufficient to cover all expected claims liabilities for events that have already occurred, whether
reported or not, taking into account the time value of money, using a rate that reflects the estimated market yield of the underlying
assets backing these claims liabilities. IBNR and risk margin are reviewed and adjusted at least quarterly.
The discount is applied to the total claims reserve and adjusted on a regular basis for changes in market yields. If market yields
rise, the discount would increase and reduce total claims liabilities and, therefore, positively impact underwriting income in that
period, all else being equal. If market yields decline, it would have the opposite effect. MYA is excluded from the calculation of
NOI and the related non-GAAP financial measures as it not representative of our operating performance. See Section 37 – Non-
operating results for more details on the impact of MYA on underwriting.
Net claims liabilities
by business segment
P&C Canada
P&C U.S.
P&C UK&I
December 31, 2021
Net claims liabilities
by line of business
PL
CL
Diversification reduces the
uncertainty associated with the
unfavourable development of
claims liabilities for our Canadian,
UK&I and US operations.
44%
56%
8%
26%
66%
58 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
26.2 Reinsurance
In the ordinary course of business, we reinsure certain risks with other reinsurers to limit our maximum loss in the event of catastrophic
events or other significant losses. Our objectives related to ceded reinsurance are capital protection, reduction in the volatility of results,
increase in underwriting capacity and access to the expertise of reinsurers. The placement of ceded reinsurance is mainly on an excess-
of-loss basis (per event or per risk), but some proportional cessions are made for specific portfolios. Ceded reinsurance complies with
regulatory guidelines, including with respect to coverage limits for Canadian earthquake risk.
Annually, we review and adjust our reinsurance coverage to reflect our current exposures and our capital base. The most material
component of our reinsurance program is the catastrophe treaty, for which we provide more detail below. See Note 14 – Reinsurance
to the Consolidated financial statements for further details on our reinsurance net retention and coverage limits by nature of risk.
Corporate reinsurance program for multi-risk events and catastrophes
Effective January 1, 2022, the catastrophe reinsurance program covers the global operations of IFC, including RSA’s Canadian and
UK&I operations, which were covered by their own reinsurance program in 2021. The Company’s approach for setting limits in each
country is consistent with prior years.
The following table summarises the net retention and coverage limits for multi-risk events and catastrophes, including the new IFC
program effective January 1, 2022.
Table 34 – Corporate reinsurance program for multi-risk events and catastrophes
As of January 1,
Canadian events (in million of CAD)
Retention 3
Coverage limits4
US events (in million of CAD)
Retention 3
Coverage limits4
UK events (in million of GBP)
Retention 3
Coverage limits4
2022
IFC
20211
Aggregate
200
7,200
125
1,225
75
1,350
225
8,500
225
1,055
75
1,350
20212
IFC
150
5,300
150
4455
n/a
n/a
2021
RSA
75
3,200
75
610
75
1,350
1 Reflects the aggregate of Intact and RSA retention and coverage limits in 2021.
2 Reflects Intact’s retention and coverage limit, excluding RSA.
3 Excludes reinstatement premium, tax impacts and co-participations between the retention level and coverage limit.
4 Represents the ground up limit before co-participations and retention level.
5 Includes IFC’s main catastrophe program plus the limit provided by a specific protection for the US Specialty Property portfolio.
January 1, 2022
•
For Canadian events, the coverage limit before co-participations is $7.2 billion for 2022, which is smaller than the aggregate of
$8.5 billion for 2021. The lower coverage limit reflects reductions in earthquake exposure in British Columbia.
• As an illustration of the capacity of our 2022 reinsurance program, the retained cost of a 1 in 500- year earthquake event in
British Columbia would represent around 3 points of combined ratio, based on latest exposures. The retained cost includes our
$200 million retention plus reinstatement premiums and co-participations.
•
•
For US events, we have increased our coverage limit for 2022 to reflect the combined Intact and RSA UK&I exposures.
For UK&I events, while we have maintained the same retention and coverage limit for 2022, we have introduced a small amount
of co-participation in the program.
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
In line with industry practice, our reinsurance recoverables with licensed Canadian reinsurers are generally unsecured as Canadian
regulations require these reinsurers to maintain minimum asset and capital balances in Canada to meet their Canadian obligations,
and claims liabilities take priority over the reinsurer’s subordinated creditors. We have collateral in place to support amounts receivable
and recoverable from unregistered reinsurers.
We ensure our placement of reinsurance is diversified to avoid excessive concentration to a specific reinsurance group. We are
selective with respect to our choice of reinsurers, placing reinsurance with only those reinsurers having a strong financial condition.
Adverse development cover
On July 27, 2021, we entered into a reinsurance contract pursuant to which a third-party reinsurer assumed 50% of negative reserve
development in excess of an agreed retention with respect to certain of RSA's UK&I and other claims liabilities for accident years 2020
and prior. The maximum amount recoverable from the third-party reinsurer under the reinsurance contract is 50% of £400 million and
is subject to certain exclusions and limitations including in relation to first party COVID-19 related claims. The transaction closed on
October 6, 2021, following regulatory approval and satisfaction of various closing conditions. The purchase of this ADC has reduced
the potential volatility in our claims liabilities and resulted in a release of risk margin in Q4-2021. The net impact of the adverse
development coverage, amounting to $71 million was reported in Acquisition, integration and restructuring costs in Q4-2021.
60 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 27 - Employee future benefit programs
We currently offer defined benefit (“DB”) pension plans, d efined contribution (“DC”) pension plans, as well as other pension-related
savings plans to our employees. As a Best Employer, these pension offerings are valuable components of our total employee rewards
package and are designed to be competitive to attract and retain talent.
In Canada, we provide flexible pension plan benefits to current employees, including former RSA employees effective August 30, 2021.
Employees have the choice between three DB options and one DC option, and this choice can be modified every five year s. To protect
the long- term financial sustainability of the DB plans, the employee contribution level has been adjusted in recent years to maintain
cost-sharing aligned with the interest rate environment.
In the UK&I, as a result of the RSA Acquisition, we have acquired DB pension plans, which are closed to future accruals, and we
provide DC pension plans to current employees.
In the US, we provide a 401(k) plan to our employees.
Across all jurisdictions, we also sponsor legacy DB pension plans, which are closed to future accruals for existing members, post-
retirement benefit plans to a limited number of active employees and retirees, post-employment benefit plans to employees on disability,
as well as end-of-service indemnities to certain employees.
Overall, our DB pension plans are well funded. The DB pension obligation and accounting funding ratio by country are summarized
below.
Table 35 – DB pension obligation and accounting funding status
As at December 31,
UK1
Canada
Other
DB pension
obligation
14,665
3,739
165
2021
Accounting
funding ratio
(funded plans)
108%
106%
118%
DB pension
obligation
n/a
3,151
n/a
2020
Accounting
funding ratio
(funded plans)
n/a
97%
n/a
18,569
1 Based on the latest actuarial valuations, there is a continuation of current funding arrangements of approximately £75 million per year plus expenses
108%
3,151
97%
and regulatory levies for the UK DB pension plans.
We continuously manage the risks related to our DB obligation to reduce volatility that stems from both the pension liabilities and assets
by considering and executing strategies such as:
•
•
•
•
asset diversification;
asset-liability matching to hedge against interest rate, inflation and credit risks;
longevity swaps; and
opportunistic buy-in and buy-out annuity purchases.
In 2021, as part of our de-risking strategy in Canada, we purchased buy-in annuities with reputable life insurance companies for over
$800 million, representing two thirds of the retiree exposure and almost a quarter of the total pension liability in Canada.
In the UK, the DB pension plans went through a significant de-risking exercise over time, including asset-liability matching and longevity
swaps, and we continue to work with pension trustees to manage pension risks.
See Note 30 – Employee future benefits to the Consolidated financial statements and Section 33 – Enterprise Risk Management for
further details.
INTACT FINANCIAL CORPORATION 61
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 28 - Capital management
28.1 Our capital management framework
Capital management objectives
Capital management is a vital part of the financial management of the Company and is aligned with its strategy and business plan.
Capital is managed on a group basis as well as individually for each operating subsidiary.
Our objectives when managing capital consist of:
• maximizing long-term shareholder value by optimizing capital used to operate and grow the Company; and
• maintaining strong regulatory capital levels, to ensure policyholders are well protected and the probability of breaching regulatory
minimum requirements is very low.
Group capital position
Capital management at a group level focuses on optimizing overall capital within the various subsidiaries and ensuring there are
sufficient liquid resources to support regulatory capital requirements, debt obligations, the payment of shareholder dividends,
acquisitions and other business purposes.
The capital strength of the group is measured by the Total Capital Margin. Total capital margin includes capital in excess of the internal
CALs for insurance entities in Canadian, US, UK and other internationally regulated jurisdictions and the funds held in non- regulated
entities, less any ancillary own funds committed by the Company. CALs represent the thresholds below which regulator notification is
required together with a company action plan to restore capital levels. These thresholds are reviewed annually as part of risk
management practices.
Capital deployment strategy
Any deployment of capital is executed within the context of the stated capital management objectives and only after careful
consideration of the impact on the Company’s risk metrics.
Capital deployment will be considered in the context of the following capital management priorities:
Manage volatility
•
The Company will maintain an adequate capital margin to ensure that it is sufficiently capitalized to
withstand an acceptable level of insurance and/or market shocks.
Manage leverage
• Prudent debt leverage is an important component of our capital structure. We target a 20% adjusted
debt-to-total capital ratio.
•
Leverage may increase temporarily to support value creation from M&A opportunities, with the goal to
return to the target within a two- to three-year time horizon.
Increase common
shareholder
dividends
• Common shareholder dividend payments are reviewed annually. The Company seeks to maintain a
sustainable dividend payout level, with the intention of annually increasing common shareholder
dividends.
Invest in growth
•
Investing in growth opportunities continues to be a key pillar of the Company ’s strategy. The Company
may use a portion of the capital margin for acquisitions or other growth opportunities.
Share buybacks
• Where there is excess capital and no actionable growth opportunities on the near- to medium-term
horizon, we may consider share buybacks as a capital management tool.
• Key considerations in any share buybacks include our estimate of intrinsic value and impacts on
NOIPS, ROE and BVPS.
62 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Regulatory capital
The amount of capital in any particular company or country depends upon the Company’s internal assessment of capital adequacy in
the context of its risk profile and strategic plans, as well as local regulatory requirements. The Company’s objective is to maintain the
capitalization of its regulated operating subsidiaries above the relevant minimum regulatory capital requirements in the jurisdictions in
which they operate (referred to as regulator supervisory minimum levels).
Canada
• Our federally chartered Canadian P&C insurance subsidiaries are subject to the regulatory capital requirements
defined by OSFI and the Insurance Companies Act, while our Québec provincially chartered subsidiaries are
subject to the requirements of the AMF and the Act respecting insurance.
•
Federal and Québec regulated P&C insurers are required, at a minimum, to maintain a MCT ratio of 100%.
• OSFI and the AMF have also established a regulator supervisory target capital ratio of 150%, which provides a
cushion above the minimum requirement.
• RSA’s UK&I operations are subject to regulation and supervision by the Prudential Regulation Authority (“PRA”).
as well as other regulators at a subsidiary level.
UK&I
• UK&I operations use an internal model compliant with the Solvency II regime enacted in the UK and approved
by the PRA to calculate the SCR.
•
The coverage ratio represents total Eligible Own Funds over the SCR as determined by the internal model.
• Our US insurance operations are subject to regulation and supervision in each of the states where they are
domiciled and licensed to conduct business.
US
• State insurance departments have established the insurer solvency laws and regulatory infrastructure to
maintain accredited status with the National Association of Insurance Commissioners (“NAIC”).
• A key solvency-driven NAIC accreditation requirement is a state's adoption of RBC requirements.
Regulatory capital guidelines change from time to time and may impact our capital levels. We carefully monitor all changes, actual or
proposed.
INTACT FINANCIAL CORPORATION 63
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.2 Maintaining a strong capital position
Capital position
All our regulated P&C insurance subsidiaries are well capitalized on an individual basis.
Table 36 – Estimated aggregated capital position
As at
Total capital margin
Regulatory capital ratios
Canadian regulated entities
UK & International regulated entities2
US regulated entities
Adjusted debt-to-total capital3 (Table 60)
Regulatory
capital ratios
CAL
December 31,
2021
Sept. 30,
2021
December 31,
2020
MCT
SCR
RBC
173%1
120%
200%
2,891
2,693
2,729
206%
180%
448%
23.0%
204%
176%
441%
23.9%
224%
n/a
469%
24.1%
Total leverage ratio3,4 (Table 60)
1 The average CAL for all regulated Canadian insurance entities is 173% MCT. The CAL varies by legal Canadian entity.
2 Indicated CAL and coverage figures shown are for Royal & Sun Alliance Insurance Limited which includes all UK & International insurance subsidiaries.
3 See Section 38 – Non-GAAP and other financial measures for more details.
4 Including debt, preferred shares and hybrids.
34.3%
33.4%
33.2%
Total capital margin
Highlights
Total capital margin stood at a strong $2.9 billion as at December 31, 2021,
reflecting solid capital generation, the payment of shareholder dividends, as well as
broker investments.
• During Q4-2021, it improved by $198 million, driven by strong underwriting
performance, favourable equity markets, and the payment of shareholder
dividends.
•
Since December 31, 2020, the improvement reflected the financing and
completion of the RSA Acquisition, strong operating and investment returns, as
well as the payment of shareholder dividends.
Regulatory capital ratios for all jurisdictions are above operating targets, and well
above minimum regulatory targets. The SCR ratio for UK&I will close above the
minimum targets agreed with the PRA at the time of acquisition, which is well ahead
of the original plans.
Total capital margin
by geography
Canada
US
UK&I
24%
35%
41%
64 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.3 Managing leverage
We believe that our optimal financing structure is one where:
•
•
the adjusted debt-to-total capital ratio is broadly at 20%; and
approximately 10% of our total capital is comprised of preferred shares and hybrids.
Capital structure
December 31, 2021
Debt (excluding hybrid debt)
Preferred shares and hybrid debt
We classify hybrids with preferred shares since they are convertible to preferred shares pari
passu to our existing preferred shares in case of default or bankruptcy.
Equity
Our financing is composed of a well diversified array of funding instruments. From short-
term commercial paper, bank debt, Medium term notes, Subordinated notes, preferred
shares and common shares. These are spread across the maturity ladder to allow for
deleveraging opportunities, and mitigate against refinancing and interest rate risk.
23%
10%
67%
•
•
•
The weighted-average debt maturity is 11 years. This excludes commercial paper,
which has no maturity, and hybrid debt, which are classified with preferred shares.
The weighted-average debt coupon is 2.17% (after-tax). This includes commercial paper and term loans.
The weighted-average preferred share coupon is 4.50% (after-tax). This includes hybrid debt and RSA Tier 1 notes.
For acquisition purposes, we allow for temporary increases in the adjusted debt-to-total capital ratio above our targeted level when we
have good visibility on our ability to return to 20% in the short to medium term. Given the anticipated proceeds from the sale of Codan
Denmark, we expect the adjusted debt-to-total-capital ratio to return to 20% ahead of our objective.
Financing activity in 2021
The table below represents an overview of the financing activity in 2021 and their impact on the adjusted debt-to-total capital ratio.
Debt outstanding
(excluding hybrid debt)1, 2
Adjusted
total capital2
Adjusted debt-to-total
capital ratio2
Table 37 – Financing activity
Financing
As at December 31, 2020
RSA acquisition financing
RSA acquired liabilities
Unsecured medium-term note issuances
Commercial paper
Repayment of debt
Other movements
Reconciliation to the most comparable GAAP measures
Hybrid subordinated notes1
Equity attributable to NCI (Middle East) 3 (Note 22.1)
Debt outstanding1
Total capital4
3,041
573
1,421
995
439
(1,429)
(58)
4,982
247
5,229
12,624
5,131
2,216
995
439
(1,429)
1,722
21,698
314
22,012
24.1%
(3.7)%
4.9%
3.5%
1.5%
(5.0)%
(2.3)%
23.0%
1 Debt is presented at carrying value. See Note 13.4- Summary of debt outstanding to the Consolidated financial statements for more details.
2 See Section 38 – Non-GAAP and other financial measures for more details.
3 Excluded from Adjusted total capital to reflect capital attributable to common shareholders.
4 Total capital represents the sum of Debt outstanding and Total equity, as reported under IFRS.
INTACT FINANCIAL CORPORATION 65
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Medium-term notes refinancing
• On May 18, 2021, we completed a three-tranche unsecured medium-term notes offering of:
− Series 11 : $375 million, 1.207% maturing on May 21, 2024.
− Series 12 : $375 million, 2.179% maturing on May 18, 2028.
− Series 13 : $250 million, 3.765% maturing on May 20, 2053.
•
The net proceeds from this offering was used to fund the early redemption of:
− RSA’s £350 million senior notes; and
−
IFC’s $300 million Series 4 unsecured MTN.
Partial redemption of RSA’s Tier 2 subordinated notes
•
To enhance Tier 1 capital composition in the UK and continue to optimize the efficiency of the capital structure going forward, we
have decided to proceed with the partial redemption of RSA’s £400 million Tier 2 subordinated notes.
• On September 20, 2021, £240 million Tier 2 subordinated notes were redeemed at a purchase price of 114.531%, for a total
redemption amount of approximately £275 million ($469 million).
•
The Tier 2 partial redemption was funded using the credit facility prior to the launch of our commercial paper program.
New $500-million commercial paper program
• On October 7, 2021, we launched a Canadian commercial paper program, whereby we may issue short-term promissory notes
(“commercial paper”) up to an aggregate principal amount of $500 million.
•
This program, which is backed by the credit facility, represents an effective short-term funding vehicule that is expected to be
partially repaid following the receipt of the proceeds from the sale of the Denmark operations, in Q2-2022.
• We expect to continue using commercial paper to manage short-term liquidity needs.
•
As of December 31, 2021, we had $439 million outstanding, with weighted-average maturity of 78 days and weighted average
annual rate of 0.28%.
Series 3 Preferred shares and Series 4 Preferred shares
• On August 31, 2021, we opted to renew our Series 3 Preferred Shares and Series 4 Preferred Shares and proceed with their rate
reset. Investors had the option to move between the 2 series.
• Given the lack of participation in the Series 4 Preferred Shares, they were delisted. As a result, effective September 30, 2021, all
remaining Series 4 Preferred Shares were converted to Series 3 Preferred Shares, which now yield 3.457% annually.
$1.5 billion credit facility
• On June 1, 2021, in order to provide incremental liquidity following the RSA Acquisition, the credit facility was increased from
$750 million to $1.5 billion.
See Note 20 – Debt outstanding and Note 21 – Common shares and preferred shares of Consolidated financial statements for more
details. For information on the RSA Acquisition financing and H1-2021 treasury activities, please refer to our Q2-2021 MD&A.
66 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.4 Common shareholder dividends
2022: our 17th consecutive dividend increase
• We strive to maintain our dividend track record through sustainable annual dividend increases. We have increased our common
share dividends each year since going public.
• We increased our dividends by 10% in Q4-2021 to $0.91, following OSFI’s lifting of the restrictions on capital distributions.
•
The decision to increase our dividends by another 10% to $1.00 per quarter in 2022 reflects the strength of our financial position
and confidence in our ongoing operating earnings and capital generation This represents the 17th increases in dividend since
initial public offering (IPO).
17-year CAGR of 11% (2005-22)1
10-year CAGR of 10% (2012-22)1
1.00
1.08
0.65
1.24
1.28
1.36
1.48
1.60
1.76
1.92
2.12
2.56
2.32
1
4.00
3.32
3.40
3.04
2.80
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1Annual dividend for 2022 is projected
28.5 Share buybacks
There was no share buyback during 2021 and 2020. Since 2009, $627 million has been returned to shareholders, with an average
buyback share price of $50.91. As part of our capital deployment strategy and in expectation of the reception of the proceeds from the
sale of RSA’s Danish operations, we intend to reinstate our share buyback program (NCIB) in 2022, subject to TSX approval.
28.6 Ratings
Independent third- party rating agencies assess our insurance subsidiaries’ ability to meet their ongoing policyholder obligations
(“financial strength rating”) and our ability to honour our financial obligations (“senior unsecured debt rating”). Ratings are an important
factor in establishing our competitive position in the insurance market, mainly in commercial insurance, and accessing capital markets
at competitive pricing levels.
Table 38 – Ratings
Financial strength ratings
IFC’s principal Canadian P&C insurance subsidiaries
RSA Canadian entities
Intact US (OneBeacon) US regulated entities
RSA Insurance Group UK&I
Senior unsecured debt ratings
IFC
Intact US (OneBeacon)
RSA Insurance Group plc.
A. M. Best
DBRS
Moody’s
Fitch
A+
not rated
A+
A
a-
a-
not rated
AA(low)
AA(low)
AA(low)
AA(low)
A
A
A
A1
A1
A2
A2
Baa1
Baa2
Baa1
AA-
AA-
AA-
AA-
A-
A-
A-
In Q4-2021, DBRS assigned ratings for RSA Canadian and UK entities of AA(low) for financial strength – outlook stable. A.M.Best
assigned first time ratings to Royal & Sun Alliance Insurance (RSAI) of A for financial strength - outlook stable.
INTACT FINANCIAL CORPORATION 67
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.7 Book value per share
Book value per share increase over time
• Our operating performance and financial strength have translated into close to $2.3 billion in capital returned to common
shareholders through dividends and share repurchases over the past five years.
• Our BVPS was up 40% to $82.34 in 2021, mainly driven by our strong earnings, net of common share dividends, and the RSA
financing.
• We remained committed to our financial objectives in terms of ROE outperformance and NOIPS growth to enhance value to
shareholders.
10-year CAGR (2011-21) of 10.7%
82.34
21.96
24.88
26.47
29.73
33.03
33.94
58.79
53.97
48.00
48.73
37.75
39.83
42.72
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Q4-2021
79.21
3.78
0.07
3.85
(0.35)
-
0.37
-
(0.91)
0.17
82.34
4%
2021
58.79
12.41
(0.01)
12.40
0.62
0.02
1.67
12.13
(3.40)
0.11
82.34
40%
2020
53.97
9.92
(2.72)
7.20
0.96
(0.34)
0.31
0.04
(3.32)
(0.03)
58.79
9%
Table 39 – Evolution of BVPS (in dollars)
As at December 31,
BVPS, beginning of period
Net income
NOIPS, basic and diluted
After-tax non-operating gains (losses)
Net income attributable to common shareholders (EPS)
Other comprehensive income (loss)
Impact of market movements on AFS securities
Foreign exchange impact
Net actuarial gains (losses) on employee future benefits
Net impact from issuance of common shares
Dividends on common shares
Other1
BVPS, end of period
Period-over-period increase
1 Includes share-based payments.
68 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.8 Understanding our cash flows
Cash flows used in operating activities mainly consist of insurance premiums less claims and expense payments, plus investment
income. Cash is used to pay dividends on common and preferred shares. Cash may also be deployed for strategic purposes like
business acquisitions, investments in brokerage firms and share buybacks, or to repay outstanding financing. Cash inflows in excess
of these outflows are moved to our investment portfolio to generate additional investment income in the future.
Table 40 – Cash flows
Net cash flows provided by operating activities
894
680
214
3,129
2,352
777
Q4-2021 Q4-2020 Change
2021
2020 Change
Cash flows generated from (deployed on):
Business combination, net of cash acquired 1
Proceeds from the disposal of certain RSA assets1
Proceeds from issuance of debt, net of issuance costs2
Repayment of debt
Borrowing (repayment) on the credit facility and
commercial paper, net
Proceeds from issuance of common shares and preferred
shares, net of issuance costs2
Repurchase of common shares for share-based payments
Dividends on common shares and preferred shares
Dividends to non-controlling interests
Equity investments in brokerages and other, net
Purchases of intangibles and P&E, net
Payments of lease liabilities
Payment of contingent consideration related to a business
combination
Proceeds from (repayment of) securities sold under
repurchase agreements
Net cash inflows (outflows) before the following:
Proceeds from investment sales (purchases), net
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange rate difference on cash and cash equivalents
Cash and cash equivalents at end of the period3
-
-
1
(73)
(33)
-
(5)
(173)
(13)
(23)
(106)
(27)
-
-
442
(1,168)
(726)
3,014
(12)
2,276
1 See Note 5 – Business combination to the Consolidated financial Statements for details.
2 See Section 28 – Capital management.
3 Net of bank overdraft.
-
-
596
-
-
-
(595)
(73)
(11,076)
7,209
1,815
(1,429)
-
-
894
(47)
(11,076)
7,209
921
(1,382)
(2)
(31)
439
(165)
604
-
(4)
(132)
-
(59)
(55)
(15)
-
(1)
(41)
(13)
36
(51)
(12)
4,263
(64)
(679)
(27)
(102)
(327)
(97)
(94)
94
(15)
-
-
-
915
(818)
97
837
(17)
(473)
(350)
(823)
2,177
5
3,039
(1,676)
1,363
917
(4)
917
1,359
2,276
146
(49)
(527)
-
(187)
(163)
(59)
(94)
(20)
2,081
(2,092)
(11)
936
(8)
917
4,117
(15)
(152)
(27)
85
(164)
(38)
79
20
958
416
1,374
(19)
4
1,359
We have sufficient capital resources, cash flows from operating activities and borrowing capacity to support our current and
anticipated activities, scheduled principal and interest payments on our outstanding debt, the payment of dividends and other
expected financial commitments in the near term.
INTACT FINANCIAL CORPORATION 69
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
28.9 Contractual obligations
Table 41 – Contractual obligations
As at December 31, 2021
Principal repayment on notes outstanding
Interest payments on notes outstanding
Claims liabilities1,2
Leases3
Investments4
Pension obligations5
Other financial liabilities2
Total contractual obligations
Payments due by period
Total Less than 1 year
1 - 5 years Thereafter
5,229
2,571
24,108
547
1,087
906
5,225
39,673
892
144
9,904
87
1,087
139
3,622
15,875
1,952
480
11,700
241
n/a
555
572
15,500
2,385
1,947
2,504
219
n/a
212
1,031
8,298
1 Undiscounted value, including incurred but not reported reserves. Excludes periodic payment orders.
2 Refer to Note 10.5b) – Financial liabilities by contractual maturity to the Consolidated financial statements for details.
3 Includes variable lease payments not based on an index or rate, such as property taxes.
4 Represents property funds, collateralized debt obligations and other classes of investments which are callable on demand over the life of the funds.
5 Represent the expected benefit payments for funded and unfunded plans. See Section 27 – Employee future benefits program and Note 30 – Employee
future benefits to the Consolidated financial statements for details.
Refer to Note 34 – Commitments and contingencies to the Consolidated financial statements for details.
70 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 29 - Foreign currency management
29.1 Currency hedging
RSA Acquisition hedging
•
In November 2020, we entered into foreign currency forward contracts to fully hedge
the net currency exposure related to the RSA purchase price of £3.0 billion
($5.1 billion).
• On closing of the RSA Acquisition, these forward contracts were all executed.
Denmark sale hedging
• Expected proceeds from the sale of the Danish operations in DKK have been fully
hedged through a combination of USD denominated bank term loan, cross-currency
swaps, as well as foreign currency forwards. These hedges also protect our balance
sheets DKK/Euro exposure.
Book value hedges
Net exposure by currency
(as a % of common shareholders’ equity)
December 31, 2021
CAD
USD
GBP
15%
19%
66%
• We protect our book value from currency risk arising from our ownership of non-Canadian entities by hedging foreign currency.
The hedging is done using foreign currency forward contracts and cross-currency swap agreements as per our internal risk
appetite.
•
•
•
•
In November 2020, we entered into foreign currency forward contracts for a notional amount of £700 million ($1.2 billion), whereby
we sell GBP for CAD, in order to reduce our book value exposure to the GBP.
In September 2021, we increased our book value hedge by £275 million ($470 million) to £975 million to reflect the impact of the
Tier 2 notes redemption on our GBP exposure. On a consolidated basis, our hedged GBP exposure was £780 million, given the
£195 million EURO/GBP hedge in place in the UK legal entities.
In September 2021, we eliminated our USD book value hedge by US$200 million. Considering the total level of foreign currency
exposure, we believe that an acceptable amount of USD exposure can help mitigate risk in the overall portfolio.
As of December 31, 2021, the book value hedges in place were as follows:
−
−
−
£975 million GBP/CAD
£195 million EURO/GBP
€988 million EURO/CAD and DKK/CAD. Of the €988 million, €760 million is used to hedge the proceeds from the sale of
the Denmark business
Operational/ cash flow hedging
•
As part of regular operations, we can from time to time enter into derivative contracts to hedge expected future cash flows in
different currencies to protect against exchange rate volatility.
See Note 8 – Derivative financial instruments and Note 10.1 b) – Exposure to currency risk to the Consolidated financial statements for
more details.
INTACT FINANCIAL CORPORATION 71
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
RISK MANAGEMENT
Section 30 - Overview
We have a comprehensive risk management framework and internal control procedures designed to manage and monitor various risks
in order to protect our business, clients, employees, shareholders, regulators and other stakeholders. Our risk management programs
aim at mitigating risks that could materially impair our financial position, accepting risks that contribute to sustainable earnings and
growth and disclosing these risks in a full and complete manner.
Effective risk management rests on identifying, understanding and communicating all material risks we are exposed to in the course of
our operations. In order to make sound business decisions, both strategically and operationally, management must have continual
direct access to the most timely and accurate information possible. Either directly or through its committees, the Board of Directors
ensures that our management has put appropriate risk management programs in place. The Board of Directors, directly and in particular
through its Risk Management Committee, oversees our risk management programs, procedures and controls and, in this regard,
receives periodic reports from, among others, the Risk Management Department through the Chief Risk Officer, internal auditors and
the independent auditors. A summary of our key risks and the processes for managing and mitigating them is outlined below.
The risks described below, and all other information contained in our public documents, including our Consolidated financial statements,
should be considered carefully. The risks and uncertainties described below are those we currently believe to be material, but they are
not the only risks and uncertainties we face. If any of these risks, or any other risks and uncertainties that we have not yet identified, or
that we currently consider to be not material, actually occur or become material risks, our business prospects, financial condition, results
of operations and cash flows could be materially adversely affected.
While we employ a broad and diversified set of risk mitigation and risk transfer techniques, those techniques and the judgments that
accompany their application cannot anticipate every economic and financial outcome in all market environments or the specifics and
timing of such outcomes.
Following the RSA Acquisition, the Company has harmonized its risk management practices globally. While some processes differ
based on local regulatory requirements, the general risk management principles and risk appetite are aligned across the Company.
This enables consistent identification, assessment and management of top and emerging risks.
72 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 31 - Risk management structure
INTACT FINANCIAL CORPORATION 73
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
The Board of Directors is responsible for the oversight of risk management to ensure that risks are properly measured, monitored and
reported. In this regard, the Board is supported by its Risk Management Committee, which covers enterprise- wide risks. In addition, we
have an internal Enterprise Risk Committee composed of senior executives.
The Board and Committee structures are reviewed periodically to align with best practices, applicable laws and regulatory guidelines
on corporate governance.
Board of Directors
Main responsibility is to oversee our management of business and affairs, including our pension funds. In this regard,
the Board establishes policies, reporting mechanisms and procedures in view of safeguarding our assets and ensuring
our long-term viability, profitability and development.
Risk Management
Committee
Assists the Board of Directors with its oversight role with respect to our management in order to build a sustainable
competitive advantage, by fully integrating the Enterprise Risk Management policy into all of our business activities,
strategic planning and our subsidiaries and operations, including our pension funds.
Compliance Review
and Corporate
Governance (CRCG)
Committee
Ensures a high standard of governance, compliance and ethics in our Company, including our pension, funds and that
we meet our legal requirements and engage in best practices as determined by the Board of Directors. In this regard,
the CRCG Committee oversees our governance framework and that of our pension funds, our compliance framework,
our compliance programs which includes related party transactions (“RPT”), our market conduct programs and policies,
as well as the implementation of corporate compliance initiatives.
Human Resources
and Compensation
Committee
Assists the Board of Directors in fulfilling its governance supervisory responsibilities for strategic oversight of our human
capital, including organizational effectiveness, succession planning and compensation and the alignment of
compensation with our philosophy and programs consistent with our overall business objectives.
Audit Committee
Assists the Board of Directors with its oversight of the integrity of our financial statements and financial information, the
accounting and financial reporting process, the qualifications, performance and independence of the external auditors,
the performance of the internal audit function and the quality and integrity of internal controls.
Enterprise Risk
Committee
This committee is composed of senior officers designated by the Board of Directors and is chaired by the Chief Risk Officer.
It meets regularly and oversees our risk management priorities, assesses the effectiveness of risk management programs,
policies and actions of each key function of our business and reports on a quarterly basis to the Risk Management
Committee. The Enterprise Risk Committee evaluates our overall risk profile, aiming for a balance between risk, return,
and capital, and approves risk policies. The Enterprise Risk Committee is mandated to: (i) identify risks that could materially
affect our business; (ii) measure risks in terms of the impact on both financial resources and reputation; (iii) monitor risks;
and (iv) manage risk in accordance with the risk appetite statement determined by the Board of Directors. Periodically, this
committee may establish sub-committees to review specific subjects in greater detail and report back on its findings and
recommendations. This allows the Enterprise Risk Committee to access the expertise throughout our Company and to
operate more efficiently in addressing key risks.
Other committees
We have other committees responsible for managing, monitoring and reviewing specific aspects of risk related to our
operations, investments, profitability, insurance operations, security, capital allocation and business continuity. Further
details follow on how these committees operate, ensure compliance with laws and regulations and report to the
Enterprise Risk Committee.
74 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 32 - Corporate governance and compliance program
We believe that sound corporate governance and compliance monitoring related to legal and regulatory requirements are
paramount for maintaining the confidence of different stakeholders including our investors. Legal and regulatory compliance risk arises
from non-compliance with the laws, regulations or guidelines applicable to us as well as the risk of loss resulting from non-fulfillment of
a contract. We are subject to strict regulatory requirements and detailed monitoring of our operations in all states, provinces and
territories where we conduct business, either directly or through our subsidiaries. Our corporate governance and compliance program
is built on the following foundations:
32.1 Corporate governance and compliance program
Corporate governance ensuring compliance with laws and regulatory requirements
Sound corporate
governance standards
Effective disclosure
controls and
processes
Sound corporate
compliance structures
and processes
Specialized resources
independent from
operations
The Board of Directors and its
Disclosure controls and
Effective corporate governance
To manage the risks associated
committees are structured in
processes have been put in
depends on sound corporate
with compliance, regulatory,
accordance with sound
place so that relevant
compliance structures and
legal and litigation issues, we
corporate governance
information is obtained and
processes.
have specialized resources
standards.
communicated to senior
We have established an
reporting to the SVP, Corporate
Directors are presented with
management and the Board of
enterprise-wide Compliance
and Legal services that remain
relevant information in all areas
Directors to ensure that we
Policy and framework including
independent of operations.
of our operations to enable
meet our disclosure obligations,
procedures and policies
The SVP, Corporate and Legal
them to effectively oversee our
while protecting the
necessary to ensure adherence
services reports to the Board of
management, business
confidentiality of information.
to laws, regulations and related
Directors and its committees on
objectives and risks. The Board
A decision-making process
obligations. Compliance
such matters, including with
of Directors and the Audit
through the Disclosure
activities include identification,
respect to privacy and
Committee periodically receive
Committee is also in place to
mitigation and monitoring of
Ombudsman complaints.
reports on all important
facilitate timely and accurate
compliance/reputation risks, as
We also use third party legal
litigation, whether in the
public disclosure, including
well as communication,
experts and take provisions
ordinary course of business
compliance in accordance with
education, and activities to
when deemed necessary or
where such litigation may have
requirements of Canadian
promote a culture of compliance
appropriate.
a material adverse effect, or
Securities Administration
and ethical business conduct.
outside the ordinary course of
National Instrument 52-109.
business.
While senior management has ultimate responsibility for compliance, it is a responsibility that each individual employee shares. This is
clearly set out in our core Business Values and Code of Conduct and employees sign a confirmation that they have reviewed and
complied with them annually.
INTACT FINANCIAL CORPORATION 75
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 33 - Enterprise Risk Management
33.1 Mandate
The Enterprise Risk Management strategy is designed to provide an overview of our risks and ensure that appropriate actions are taken
to protect our clients, employees, shareholders, regulators, and other stakeholders.
We have an integrated risk-based approach to significantly increase the effectiveness of the program, ensuring that delegated
authorities’ actions are consistent with the overall strategy and risk appetite. Overall, the risk profile and communication must be
transparent with the objective of minimizing surprises to internal and external stakeholders on risk management.
Our risks are separated into four main categories: Strategic Risk, Insurance Risk, Financial Risk and Operational Risk.
33.2 Objectives
overseeing and objectively challenging the execution of risk management activities;
identifying, as completely as possible, the most important risks and issues that may affect us;
•
•
• monitoring identified risks, major incidents and control weaknesses and reviewing adopted strategies;
•
•
•
•
•
•
allocating risk ownership and responsibilities;
gathering early warning information;
escalating risk management issues and vetoing high risk business activities;
enforcing compliance with the risk policies;
disclosing key risks completely and transparently; and
supporting management in raising risk awareness and insight.
76 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
33.3 A shared responsibility
Managing risk is a shared responsibility at Intact. The three lines of defence model is employed to clearly identify the roles and
responsibilities of those involved in the risk management process and ensure accountability. On- going collaboration and clear
communication across the lines of defence are paramount to fostering alignment and optimal risk management.
33.4 Risk Appetite
How do we manage corporate risk?
From a risk management perspective, our objective is to protect the sustainability of our activities, while delivering on our promises to
our stakeholders. To do so, we strive to maintain our financial strength, even in unpredictable environments or under extreme stress.
We take a prudent approach to managing risk, and the following principles help us establish the nature and scope of risks we are willing
to assume:
• we focus on our core competencies;
• we keep our overall risk profile in check;
• we protect ourselves against extreme events;
• we promote a strong risk management culture; and
• we maintain our ability to access capital markets at reasonable costs.
Consult our website for a more detailed discussion of our Risk Appetite under the Corporate Governance section.
INTACT FINANCIAL CORPORATION 77
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
33.5 Main risk factors and mitigating actions
Our practice is to regularly identify our top risks, assess the likelihood of occurrence and evaluate the potential impacts should they
materialize both in terms of financial resources and reputation. We also consider potential emerging risks that are newly developing
or changing risks which are inherently more difficult to quantify.
We then determine mitigation plans and assign accountability for each risk if deemed appropriate given our overall assessment, our
risk appetite, and our business objectives.
78 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
33.6 Top and emerging risks that may affect future results
Each year the Enterprise Risk Management Committee identifies the top risks that the Company faces. The following section presents
the top and emerging risks identified with the most severe potential impact. In assessing the potential impact for each of the top risks,
the presence and effectiveness of risk mitigation activities are taken into consideration. Our main risk factors together with our practices
used to mitigate these risks are explained below.
Following the RSA Acquisition, the Company has added exposure to new geographies and expanded the range of products it offers.
This results in enhanced diversification across segments and geographies.
TOP AND EMERGING RISKS
Major earthquake......................................................................................................................................................................................... 79
Climate change risk ..................................................................................................................................................................................... 80
Catastrophe risk (excluding earthquake risk)............................................................................................................................................. 81
Increased competition and disruption......................................................................................................................................................... 82
Turbulence in financial markets .................................................................................................................................................................. 83
Reserving inadequacy ................................................................................................................................................................................. 84
Underwriting inadequacy............................................................................................................................................................................. 85
Governmental and/or regulatory intervention............................................................................................................................................. 86
Failure of an acquisition .............................................................................................................................................................................. 88
Cyber security failure................................................................................................................................................................................... 89
Failure of a major technology initiative ....................................................................................................................................................... 90
Inability to contain fraud and/or abuse ....................................................................................................................................................... 90
Customer satisfaction risk ........................................................................................................................................................................... 91
Social unrest risk ......................................................................................................................................................................................... 92
Third party risk ............................................................................................................................................................................................. 92
Employee defined benefit pension plan risk .............................................................................................................................................. 93
The occurrence of a solar storm ................................................................................................................................................................. 93
Major earthquake
Risk we are facing
The occurrence of a major earthquake may produce significant damage in large, heavily populated areas.
Potential impact
How we manage this risk
Insurance risk
The occurrence of a major earthquake could have a
significant impact on our profitability and financial condition
and that of the entire P&C insurance industry in Canada.
Depending on the magnitude of the earthquake, its epicentre
and the extent of the damage, the losses could be
substantial even after significant reinsurance recoveries of
IFC and RSA treaties. There could also be significant
additional costs to find the required reinsurance capacity
upon further renewals. In addition, we could be subject to
Insurance
increased assessments
Compensation Corporation (PACICC) leading to further
costs if other insurers are unable to meet their contractual
obligations with their clients.
the P&C
from
Our risk management strategy consists of regular monitoring of insured value
accumulation and concentration of risks. We use earthquake risk models to help
assess our possible losses at various return periods and use reinsurance to
transfer a substantial amount of risk. Consequently, the diversification of risk
among an appropriate number of reinsurers is vital for us. See Section 26.2 –
Reinsurance for more details on our reinsurance program.
During 2020 and 2021, we implemented a robust action plan resulting in a material
reduction in our Western Canada earthquake exposure. Both our personal and
commercial lines enacted a series of pricing and product measures. We are
regularly evaluating potential additional measures to further reduce our combined
Western Canada exposure.
We combined IFC and RSA catastrophe reinsurance treaties effective January 1,
2022 and optimized retentions based on market conditions and our risk tolerance.
INTACT FINANCIAL CORPORATION 79
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Climate change risk
Risk we are facing
Insurance risk
Climate change is a challenge that has been faced by the Canadian P&C insurance industry for decades. The risk is constantly evolving and has
increased in importance as many global industries and societies tackle the shift to a low-carbon economy.
Physical risk has been affecting our property insurance business due to changing climate patterns and an increase in the number and cost of
claims associated with severe storms and other natural disasters. Changing weather patterns have resulted in hotter, drier weather in some areas
and more humid, wetter weather in other areas. The result has been more unpredictability in weather and increasingly severe storms
Transition risk is the risk inherent in the transition to a low-carbon and more climate-resilient economy, involving changes in government policies,
the legal environment, technologies and financial markets. Awareness of the potential risk continued to increase this year with several examples
of large institutional investors shifting away from carbon-intensive sectors.
Liability risk is the risk of climate-related claims under liability policies. Compensation could be sought for losses resulting from the physical or
transition risks outlined above. Although in its very early stages globally, climate-related litigation could increase with implications for certain liability
coverages.
Potential impact
Physical risk
How we manage this risk
Physical risk
Underwriting: Weather patterns could continue to change and impact on
the likelihood and severity of natural catastrophes, such as wildfires and
flooding in the west and heavy precipitation and hurricanes in the east.
The impact of climate change may result in increased earnings volatility
and negatively affect our property and automobile insurance results, which
collectively contribute to a majority of our total annual premiums.
Operations: Could disrupt our operations, should severe weather events
affect our premises or the premises of any outsourced business functions.
Transition risk
Underwriting: Every sector contributes to the transition and the financial
impact on some sectors might be significantly negative while other sectors
may benefit. To take advantage of the transition, it is important to fully
understand the impact of this changing environment.
It could lead to a contraction of market demand in certain sectors and an
increase in losses for certain lines of business such as surety.
Investments: The risk could lead to a decline in the valuation of assets
we hold in certain sectors that are vulnerable to transition risk.
Furthermore, the exposure to carbon-intensive sectors or companies
could result in the perception of disregard towards a greener economy and
increase reputational risk for insurers who underwrite these risks.
During 2021, we participated in the Bank of Canada and OSFI’s Climate
Scenario Analysis Pilot Project. The results of the Pilot were released on
January 14, 2022. The initiative further enhanced the understanding of the
potential exposure to transition risk in our investment portfolio. The
analysis shows that our exposures projected on the next 30 years would
be manageable. We are well positioned to mitigate this risk further due to
the short-term nature of our corporate bond portfolio and our focus on
companies with strong transition plans.
Underwriting: To address this risk, we have ongoing initiatives
including pricing and product changes to reflect new climate realities,
regular reviews of claims processes and a greater focus on consumer
loss prevention. Many initiatives have been implemented over the last
several years including the expanded use of deductibles and sub-
limits, segmentation refinement, the introduction of depreciation
schedules in personal property insurance across Canada, and the
supply chain enhancement with
the acquisition of On Side
Restoration. These initiatives help mitigate, to some extent, P&C
insurance losses resulting from water damage and harsh weather. As
climate risk continues to evolve, we are continuously developing or
acquiring new modelling tools to help better assess risks from
weather patterns. We input weather, climate and topographic data
into machine learning models to develop and adapt risk maps used to
assess weather perils such as flood and wildfire. See Section 23 –
Climate change for more details on our initiatives and ongoing
management related to the risks of climate change. In addition, our
reinsurance program offers protection against unexpected weather-
related catastrophe events, See Section 26.2 – Reinsurance for
details on our reinsurance program.
Transition risk
Underwriting: We are assessing underwriting risks and opportunities
that can emerge in the transition to a low-carbon economy and acting
accordingly, such as providing electric vehicle discounts.
Investments: Intact Investment Management developed a Coal
Policy and engaged portfolio companies on climate change. Existing
holdings that exceed thresholds stated in our Policy are evaluated
based on their energy transition plan. We will divest from companies
that do not have a satisfactory plan which helps mitigate transition risk
in our investment portfolio.
80 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Catastrophe risk (excluding earthquake risk)
Insurance risk
Risk we are facing
Catastrophe events include natural disasters and non-natural events.
•
There is a wide variety of natural disasters that are mainly weather-related including but not limited to hurricanes, windstorms, hailstorms,
rainstorms, ice storms, floods, severe winter weather and forest fires.
Non-natural catastrophe events include but are not limited to hostilities, terrorist acts, riots, explosions, crashes and derailments, and wide
scale cyber-attacks.
•
Despite the use of sophisticated models, the incidence and severity of catastrophe events are inherently unpredictable. The extent of losses from
a catastrophe event is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most
catastrophe events are restricted to small geographic areas; however, hurricanes and other storms may produce significant damage in large,
heavily populated areas. Catastrophe events can cause losses in a variety of P&C insurance lines.
Potential impact
How we manage this risk
Claims resulting from natural or non-natural
catastrophe events could cause substantial
volatility in our financial results and could
materially reduce our profitability or harm our
financial condition.
Non-natural catastrophe risk
We offer cyber risk insurance to our commercial
customers. We may be adversely affected by
large-scale cyber-attacks that simultaneously
compromise the systems of many of our insureds.
In addition, we have exposure to terrorism risk
thro ugh our specialty business. Terrorism can
take many forms and both our property and
workers’ compensation policies may be affected
by an event.
•
Following RSA Acquisition, our risk appetite to catastrophe exposure was completely
reviewed.
• Greater country diversification through uncorrelated catastrophe events helps mitigate
our overall exposure.
• Our exposure data is being recorded and provides effective control over geographic risk
accumulation.
Natural catastrophe risk
Some of the risk mitigations referred to in the section above on climate change risk also
mitigate the catastrophe risk.
Non-natural catastrophe risk
To help mitigate the risks associated with our cyber risk insurance product, we generally focus
on small to medium-size companies with relatively modest policy limits, while also providing
limited affirmative coverage for first and third party privacy breaches and related expenses
We are leveraging both external and internal cyber catastrophe modelling scenarios to assess
our exposure. We purchase reinsurance specifically to transfer some of the risk in the event
a large-scale cyber-attack triggers a high volume of claims.
In addition to private reinsurance, we also participate in the US federal government terrorism
insurance backstop (TRIPRA), which mitigates our exposure under certain circumstances as
outlined in US federal legislation and we also participate in the UK government-backed pool
reinsurance facility, which limits our retention to terrorism-related risks.
INTACT FINANCIAL CORPORATION 81
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Increased competition and disruption
Risk we are facing
Strategic risk
We believe that competition in our business lines is based on price, service, commission structure, product features, financial strength and scale,
ability to pay claims, ratings, reputation and name or brand recognition. We compete with a large number of domestic and foreign insurers as well
as with Canadian banks that sell insurance products. Disruptors with lower costs and/or better technology could enter our markets and quickly
accumulate market share. These firms may use business models that are different than ours and sell products through various distribution
channels, including aggregators, brokers and agents who sell products exclusively for one insurer and directly to the consumer. We compete not
only for business and individual customers, employers and other group customers but also for brokers and other distributors of investment and
insurance products.
We distribute our products primarily through a network of brokers and a great part of our success depends on the capacity of this network to be
competitive against other distributors, including direct insurers and web aggregators, as well as our ability to maintain our business relationships
with them. These brokers sell our competitors’ insurance products and may stop selling our insurance products altogether. Strong competition
exists among insurers for brokers with demonstrated ability to sell insurance products.
Following the RSA Acquisition we now operate in the UK market where aggregators have a strong presence, leading to increased competition in
the personal insurance market. Aggregators are a common feature of the UK auto environment which increases competition on products and
pricing.
Potential impact
How we manage this risk
Intense competition for our insurance products could harm our
ability to maintain or increase our profitability, premium levels
and written insured risk volume.
The entrance of a sophisticated player or disruptor in the market
could shift methods for purchasing insurance and challenge our
distribution model. The use of information technology in the
distribution and pricing of insurance products (e.g. telematics,
the use of Big Data, etc.) has increased over the last several
years and this trend is expected to continue in the near future.
Artificial intelligence is another area that is gaining much
attention and could have a material impact on the insurance
industry. Potential disruptors may use these technologies more
effectively than us or there may be negative reputational
consequences arising from our initiatives.
Demutualization and further consolidation in the Canadian P&C
industry remains likely which may result in an erosion of our
competitive advantage.
The evolution of customer preferences for different distribution
channels or alternate business models (e.g. peer-to-peer
insurance) could lead to a material decline in our market share.
Premium volume and profitability could be materially adversely
affected if there is a material decrease in the number of brokers
that choose to sell our insurance products. In addition, our
strategy of distributing through the direct channel may adversely
impact our relationship with brokers who distribute our products.
There are a number of initiatives that we have presented to our customers to
mitigate the risk of competition and disruption including, but not limited to:
• Our multi-channel distribution strategy including the broker channel, direct
distribution brands and web platforms, enhances our ability to adapt to
evolving conditions in the insurance market. We have established close
relationships with our independent distributors by providing them with
advanced technology, as well as training to help strengthen their market
position. We closely monitor pricing gaps between our various channels
and manage the different channels under different brand names including
BrokerLink, our wholly owned broker network.
• We are promoting our brands with a focus on using web and mobile
technology to reach consumers. US activities now operate under the North
American Intact Insurance Specialty Solution name.
• We are constantly streamlining and simplifying the experience in our direct
distribution channel. As a result, we have seen a drop in our expense ratio
ensuring that we can compete on affordability.
• We are insourcing part of our claim supply chain process to differentiate
ourselves from a cost and customer experience perspective. With the
acquisition of On Side Restoration, we have now vertically integrated an
important supply chain vendor. We have established innovative service
centres in major Canadian cities to provide an unmatched customer
experience in auto repair. We have also deployed digital tools to accelerate
claims settlement and enhance communication with our customers.
• We are investing in our Data Lab and our large team of experts. We use
artificial intelligence and machine learning in a variety of business
applications to acquire and retain more profitable clients (e.g. usage-based
insurance).
82 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Turbulence in financial markets
Risk we are facing
Financial risk
Movements in interest rates, credit spreads, foreign exchange rates, inflation rates, and equity prices cause changes in realized and unrealized gains
and losses. Generally, our interest and dividend income will be reduced during sustained periods of lower interest rates. During periods of rising
interest rates, the fair value of our existing fixed-income securities will generally decrease and our realized gains on fixed-income securities will likely
be reduced or result in realized losses. Changes in credit spreads would have similar impacts as those described above for changes in interest rates.
Severe deflation or unexpected and sustained inflation could materially impact both our assets and liabilities, including our employee defined benefit
pension plans. There was a resurgence of inflation rates during 2021 which could lead to an extended period of high inflation or stagflation. See
Section 25.5 – Capital markets update.
Continued emergence of COVID-19 variants poses further challenges as the lag time between their identification and confirmation of vaccine efficacy
adds to the uncertainty around further re-opening plans and the economic environment.
Potential impact
How we manage this risk
Changes in the market variables mentioned
above could adversely affect our investment
income and/or the market value of our securities.
While our strategy is long-term in nature, it is regularly reviewed to adapt to the investment
environment when necessary, especially in times of turbulence and increased volatility, such as
the COVID-19 crisis. We closely monitor concentration across and within asset classes and
ensure that exposures remain within the risk tolerance stated in our investment policy.
In addition to the risk related to investments
discussed previously, an economic downturn
and/or increase in the inflation rate would have a
significant impact on the funded status of our
defined benefit pension plans. Consequently,
this could impact our financial condition.
economic
conditions,
General
political
conditions, social unrest, COVID-19 variants and
many other factors can also adversely affect the
equity markets and, consequently, the fair value
of the equity securities we own and ultimately
affect the timing and level of realized gains or
losses.
Periodically, we employ risk mitigation measures such as changes to our strategic asset mix,
hedging of interest rate, foreign exchange, or equity risk and increased holdings in cash. These
actions serve to reduce exposures in the investment portfolio and decrease the sensitivity of our
regulatory capital ratios to financial market volatility. During the first half of 2020, a number of
actions were taken to solidify our capital and liquidity positions. Our investment portfolio remains
defensive as we are gradually increasing our equity exposure closer to our target investment
policy allocation.
Regular stress testing of our investment risk exposures assists management in assessing the
overall level of financial risk and helps to ensure that exposures remain within established risk
tolerances. These stress tests help assessing whether our financial risk exposure requires any
adjustments. When considering the most plausible stress scenarios triggered by the pandemic,
stagflation scenarios were developed and mitigation actions closely monitored since Q2020.
Our preferred share portfolio depreciates in value
as a result of negative developments in interest
rates, credit or liquidity markets.
The Company’s exposure to financial risk arising from its financial instruments together with the
Company’s risk management policies and practices used to mitigate it are explained in our
Consolidated financial statements. Consult the following sections for more information.
Our fixed income portfolio may experience
defaults resulting in impairments and lower
income prospectively.
Reference to our Consolidated financial statements
Market risk
Notes 10.1 and 10.2
Basis risk
Note 10.3
Credit risk
Note 10.4
Liquidity risk
Note 10.5
INTACT FINANCIAL CORPORATION 83
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Reserving Inadequacy
Risk we are facing
Insurance risk
Our success depends upon our ability to accurately assess the risks associated with the insurance policies that we write. We establish reserves
to cover our estimated liability for the payment of all losses and loss adjustment expenses (“LAE”) incurred with respect to premiums collected or
due on the insurance policies that we write. Reserves do not represent an exact calculation of a liability. Rather, reserves are our estimates of
what we expect to be the ultimate cost of resolution and administration of claims. These estimates are based upon various factors, includ ing:
•
•
•
•
•
•
•
actuarial projections of the cost of settlement and administration of claims reflecting facts and circumstances then known;
estimates of trends in claims severity and frequency;
judicial theories of liability;
variables in claims handling procedures;
economic factors such as inflation;
judicial and legislative trends, and actions such as class action lawsuits and judicial interpretation of coverage or policy exclusions; and
the level of insurance fraud.
The COVID-19 pandemic brings an additional level of uncertainty to these factors when estimating reserve level.
Potential impact
How we manage this risk
Most or all of these factors are not directly quantifiable, particularly on a
prospective basis, and the effects of these and unforeseen factors could
negatively impact our ability to accurately assess the risks of the policies that we
write. In addition, there may be significant reporting lags between the occurrence
of the insured event and the time it is actually reported to the insurer and
additional lags between the time of reporting and final settlement of claims.
Establishing an appropriate level of reserves is an inherently
uncertain process. We continually refine our reserve estimates
in an ongoing process as claims are reported and settled.
Our broader international exposure enhances diversification
and reduces the potential impact of reserve inadequacy.
The effects of the COVID-19 pandemic related to emerging coverage issues and
claims, including certain class actions relating to business interruption coverage
and related defence costs, as well as other indirect claims could negatively
impact our claims reserves.
The following factors may have a substantial impact on our future actual losses
and LAE experience:
•
•
•
•
amounts of claims payments;
expenses that we incur in resolving claims;
legislative and judicial developments; and
changes in economic variables such as interest rates and/or inflation.
To the extent that actual losses and LAE exceed our expectations and the
reserves reflected in our Consolidated financial statements, we will be required
to reflect those changes by increasing our reserves. In addition, government
regulators could require that we increase our reserves if they determine that our
reserves were understated in the past. When we increase reserves, our
earnings before taxes for the period will decrease by a corresponding amount.
In addition, increasing or strengthening reserves causes a reduction in our P&C
insurance subsidiaries’ regulatory capital. See Section 26.1 – Claims liabilities
for more details.
Our reserve committees scrutinize reserves by business
segment, analyze trends and variations in losses to ensure that
we maintain a sufficient level of claims reserves and
recommends adjustments when necessary. Claims and
Reserving teams also closely monitor severity trends for
inflation, particularly on short tail lines.
There are several class-action lawsuits over our business
interruption coverage. Most commercial policies, except in very
limited instances, do not provide for business interruption
coverage in the context of a closure due to COVID-19 since
direct physical damage is required to trigger this coverage.
COVID-19 business interruption case law continues to evolve
in our favour, strengthening our position on reserving by
providing additional confidence in our policy language.
RSA claims reserves were recorded at fair value at closing, at
a level that is consistent with our standards. In Q4-2021, we
purchased an adverse development cover on UK&I reserves
from the years 2020 and prior to mitigate some of the risk
these reserves. See Section 26.2 –
associated with
Reinsurance for more details.
84 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Underwriting Inadequacy
Risk we are facing
Insurance risk
Product design and pricing risk is the risk that the established price is or becomes insufficient to ensure an adequate return for shareholders
as compared to our profitability objectives. This risk may be due to an inadequate assessment of market needs, new business context, a poor estimate
of the future experience of several factors, or the introduction of new products that could lead to higher than expected insured losses.
Potential impact
How we manage this risk
In addition,
Pricing inadequacy may lead to material
declines in underwriting results and/or
deficient reserves.
the
increase in frequency and/or severity of
claims could also create pressure on
profitability. The following factors could
deviate claims from expected levels:
•
deterioration of the economy;
•
unexpected cost inflation;
•
inadequate segmentation;
• misestimation of replacement costs;
•
•
unclear wording;
from
deviation
guidelines.
underwriting
in
COVID-19 brings uncertainty related to
potential exposure to the level of direct
losses
lines such as business
interruption and indirect losses in specialty
lines. Surety losses may increase as a
result of the potential weakening of the
economy, which may result in client
bankruptcies.
Our profitability committees review the results of each business line and determine if appropriate action
is required in terms of product design or pricing to remediate poor underwriting performance. These
committees also review our portfolio quality and the evolution of our pricing versus internal rate
indications to ensure ongoing rate adequacy. We have ongoing monitoring and action to mitigate
inflation. OnSide Restoration’s size and scale helps mitigate the impacts of inflation on our Canadian
insurance results. The inflation impact was also tempered by the increase in salvage value in auto claims.
We don’t write multi-year policies and the short-term nature of our business allows us to implement timely
action to mitigate inflation that impacts our claim costs. Supply chain agreements also help mitigate this
risk.
We adopted policies that specify our retention limits and risk tolerance and our application depends on
training and the discipline of our underwriting teams. Once the retention limits have been reached, we
use reinsurance to cover the excess risk. Moreover, our profitability and ability to grow may also be
adversely affected by our mandatory participation in the Facility Association and assumed risk-sharing
pools in several automobile insurance markets including Ontario, Québec, Alberta, and the Maritimes.
We maintain a strong underwriting discipline in the hard market environment and increase our rates while
maintaining a good retention. We are also positioning ourselves for rate adjustment in auto once driving
habits and claim frequency return to normal.
In light of the FCA rule changes and the implications for personal lines in the UK, a review of pricing and
segmentation occurred with the objective of maintaining the most profitable segment of homeowner’s
business and improving motor performance.
INTACT FINANCIAL CORPORATION 85
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Governmental and/or regulatory intervention
Strategic Risk
Risk we are facing
Our subsidiaries and affiliates are subject to regulation and supervision by regulatory authorities of the jurisdictions in which they are
incorporated and licensed to conduct business.
These laws and regulations:
•
delegate regulatory, supervisory and administrative powers to federal, state, provincial and territorial insurance commissioners and agencies;
•
are generally designed to protect policyholders and creditors, and are related to matters including:
requirements on privacy and the protection of personal information;
personal auto insurance rate setting;
risk-based capital and solvency standards;
restrictions on types of investments;
•
•
•
•
• maintenance of adequate reserves for unearned premiums and unpaid claims;
•
•
•
•
examination of insurance companies by regulatory authorities, including periodic financial and market conduct examinations;
licensing of insurers, agents and brokers;
limitations on upstream dividends from operating companies; and
transactions with affiliates.
•
typically require us to periodically file financial statements and annual reports, prepared on a statutory accounting basis, and other information
with insurance regulatory authorities, including information concerning our capital structure, ownership and financial condition including, on an
annual basis, the aggregate amount of contingent commissions paid and general business operations.
Regulatory authorities closely monitor the solvency of insurance companies by requiring them to comply with strict solvency standards based on the
risk assumed by each company with respect to asset composition, liability composition, and the matching between these two components. We are
required to submit regular reports to the regulatory authorities regarding our solvency and publish our solvency ratio every quarter. Solvency
requirements are amended from time to time.
Expectations from Canadian regulators are increasing due to our larger size, multinational operations and gain of share in the insurance market. We
are also exposed to new jurisdictions and regulators such as the Prudential Regulation Authority in the UK, with new sets of laws and requirements.
The regulatory environment in Europe can be stricter with large fines and penalties.
On February 2, 2022, OSFI published its Register of OSFI-Regulated Internationally Active Insurance Groups (“IAIG”), which included the Company.
Following the RSA acquisition, the Company met the criteria as an IAIG and will continue to document its practices, policies and procedures to align
with core outcomes of the International Association of Insurance Supervisors Framework for the Supervision of the IAIGs.
86 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Governmental and/or regulatory intervention (cont’d)
Strategic risk
Potential impact
How we manage this risk
We believe that our subsidiaries are in material compliance with all applicable
regulatory requirements. However, it is not possible to predict the future impact
of changing federal, states, provincial and territorial regulations on our
operations. Laws and regulations enacted in the future may be more restrictive
than current laws. Overall, our business is heavily regulated and changes in
regulation may reduce our profitability and limit our growth prospects.
We could be subject to regulatory actions, sanctions and fines if a regulatory
authority believes we have failed to comply with any applicable law or
regulation. Any such failure to comply with applicable laws could result in the
imposition of significant restrictions on our ability to do business or significant
penalties, which could adversely affect our reputation, results of operations
and financial condition. In addition, any changes in laws and regulations could
materially adversely affect our business, results of operations and financial
condition.
We may be subject to governmental or administrative investigations and
proceedings in the context of our highly regulated sectors of activity. We
cannot predict the outcome of these investigations, proceedings and reviews,
and cannot be sure that such investigations, proceedings or reviews or related
litigation or changes in operating policies and practices would not materially
adversely affect our results of operations and financial condition. In addition,
if we were to experience difficulties with our relationship with a regulatory body
in a given jurisdiction, it could have a material adverse effect on our ability to
do business in that jurisdiction.
Furthermore, a significant increase in solvency requirements would increase
the possibility of regulatory intervention and may reduce our ability to generate
attractive returns for shareholders. This may also negatively impact our ability
to execute our growth strategy and attain our financial objectives.
In 2021, the Federal Government of Canada announced its intention to raise
taxes on banks and insurers, which could materially impact the Company.
Additional taxes may be in the form of either a one-time assessment or a
permanent increase in taxes.
In May 2021, the Financial Conduct Authority (FCA) published its revised rules
on certain general insurance pricing practices. The changes are designed to
address market practices that can result in the progressive charging higher
premiums to existing customers than new customers and discourage customers
from switching insurers. The rules will also require firms to provide accessible
and easy options to enable customers to cancel auto-renewing policies. The new
rules that relate to systems and controls and product governance came into
effect in September 2021 and the new rules relating to pricing and auto-renewing
come into effect on January 1, 2022, with a transitional period. There remains
uncertainty on how this could impact customer premiums and switching of
customers into or out of RSA insurance products which, taken as a whole, may
adversely affect RSA’s financial prospects.
We are supported by an in-house team of lawyers and staff, and
by outside counsel when deemed necessary or appropriate, in
handling general regulation and litigation issues and are an active
member of the major industry associations.
Our government relations team ensures contact with the
governments of the various jurisdictions in which we operate and
can be proactive in situations that could affect our business. We
have been an active partner with governments throughout the
COVID-19 crisis, offering our expertise around risk management,
data and tracing.
We have also been supporting Finance Canada by providing data
to help in their decision making in regard to people and
businesses facing financial hardship during the pandemic.
We regularly monitor trends and make adjustments to our
strategy and products, when deemed appropriate, to ensure the
sustainability of insurance products and to avoid the potential for
additional regulation that may negatively impact our reputation,
profitability, and financial condition.
We provided significant premium relief measures to our
customers during the pandemic. Several sectors are facing
challenges from the commercial hard market, including long-term
care, hospitality, condominium and entertainment. We are
coordinating our effort with IBC and the Minister of Finance in
Ontario to ensure affordable coverage is available to small and
mid size companies.
To reduce the risk of breaching the regulatory capital
requirements, we have Board approved thresholds for the
regulatory capital ratios in all jurisdictions in which we operate.
We operate above these thresholds under normal circumstances
to reduce the likelihood of regulatory intervention. Our Enterprise
Risk Committee regularly review risks related to solvency and
uses stress testing to identify vulnerabilities and areas for
possible remediation. Our capital management policy contains
guidelines to help ensure that we maintain adequate capital to
withstand adverse event scenarios and has documented
procedures to take corrective actions should any unanticipated
conditions arise.
In addition, we conducted a full internal solvency assessment as
described hereafter in Section 33.8 – Own Risk and Solvency
Assessment (ORSA).
INTACT FINANCIAL CORPORATION 87
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Failure of an acquisition
Risk we are facing
Strategic risk
Our primary strategy is to pursue consolidation in the Canadian market and expansion in foreign markets where we can deploy our expertise in
data analytic, pricing, underwriting, claims management and multi-channel management. Specialty lines is another key avenue of growth where
we can leverage our expertise and leading edge customer experience.
We have received all required approvals and the RSA Acquisition has closed on June 1, 2021. On June 11, 2021 Intact announced that it had
entered into a definitive agreement to sell Codan DK to Danish financial services firm Alm.Brand A/S Group. Pursuant to the sale, Intact retains
RSA's Canadian and UK&I entities.
The acquisition opens up a series of opportunities such as expanding our leadership position in Canada and bolsters our North American specialty
lines with international expertise. On the other hand, the large scale of this acquisition and the entry into new international markets brings a set of
risks. Failure to manage the integration could have a significant adverse effect on our business, results of operations and financial condition.
How we manage this risk
including
We are a proven industry consolidator
with 18 successful P&C acquisitions
since 1988,
the RSA
Acquisition, Intact’s largest acquisition
to date, which closed on June 1, 2021.
We have a proven process of
operational integration that will be
deployed for the RSA Acquisition. We
assign dedicated and experienced task
forces to ensure a swift and effective
integration with seamless impact on
our customers. There is also strong
oversight by the Board of Directors
regarding acquisitions.
Potential impact
With respect to the RSA Acquisition, we are faced with a number of risks including, but not limited to:
•
new competitive environments could impact our ability to improve combined ratio, retain business and
achieve synergies and maintain market position arising from integration plans;
cultural issues and poorly aligned values, particularly in international jurisdictions, may hinder our
ability to effectively integrate the acquired company;
challenges in harmonizing global structures, teams, systems and processes could erode operational
efficiency;
the Company's dependence on key employees and potential failure to attract and retain key
employees in connection with the acquisition; and
inability to complete the integration of the business acquired within anticipated time periods and at
expected cost levels.
•
•
•
•
The closing of the DK sale is subject to the successful separation and transfer of the businesses in
Sweden and Norway from the Danish operation, receipt of all required regulatory approvals, the
completion of Alm. Brand’s financing and the satisfaction of certain closing conditions. We could face
additional costs and/or receive lower consideration in a sale if the Codan sale is not completed. However,
the recently successful shareholder vote provides further confidence and reduces this risk.
In addition to the potential financial impact, our reputation may be adversely affected if such an event
were to occur. Consequently, it may impact the cost or availability of capital for future acquisitions.
88 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Cyber security failure
Risk we are facing
Operational risk
Information technology and cyber security risks continue to be key risks for many companies. Criminal organizations, hackers, and other external
actors have become more active and better equipped to attack even robust systems and networks. Our dependency on technology, network,
telephony and critical applications makes our ability to operate and our profitability vulnerable to business interruptions, service disruptions, theft
of intellectual property and confidential information, litigation and reputational damage.
The volume and sophistication of cyber-attacks have significantly accelerated in the context of the COVID-19 pandemic. Cyber
criminals often exploit fear and uncertainty around the pandemic and the practice of working remotely from home brings an additional vector for
potential attacks.
These attacks may include targeted attacks on systems and applications, introduction of malicious software, denial of service attacks, and phishing
attacks that could result in the fraudulent use or theft of data, and may involve attempts to fraudulently induce employees, customers or third-party
service providers to disclose sensitive information in order to gain access to the Company’s data. Ransomware attacks have particularly
accelerated in frequency and severity. These activities are designed to disrupt the operations of an organization and/or to benefit the attacker
financially.
We may be unable to prevent cyber-attacks that result in system disruption or a breach of confidential information, whether personal or corporate
in nature. Third party service providers and other suppliers may also be the targets of successful cyber-attacks leading to a material impact on our
systems or the theft of confidential information.
Following the RSA Acquisition, our expanded technological footprint increases the likelihood of being targeted by attackers.
Potential impact
How we manage this risk
Despite our commitment to information and cyber
security, we may not be able to fully mitigate all risks
associated with the increased sophistication and
volume in the threat landscape.
The working-from-home environment during
the
pandemic also increases the level of some risks. As
such, we may be subject to a cyber-attack resulting in
system unavailability, data corruption or deletion, or
the disclosure of confidential or personal information.
Massive denial of service attacks and system
intrusion attempts could compromise our ability to
operate or we may be unable to safeguard personal
and confidential information from public disclosure.
Other potential consequences include our inability to
provide customers with
to
information on their insurance policies, provide
quotes for new insurance products or enable
customers to report claims electronically.
real-time access
These events and attacks may lead to wide ranging
consequences including:
•
loss, which also
includes
lost
financial
productivity, remediation costs, and costs
associated with potential legal action;
regulatory action, which may include regulatory
fines and/or increased scrutiny by government;
and
reputational damage such as lost consumer
confidence and lower customer retention.
•
•
To ensure the security and resilience of our systems, the safeguarding of our confidential
information and the integrity of our information and databases, dedicated teams plan, test
and execute our continuity and security plans. This includes threat and vulnerability
assessments and the implementation of appropriate mitigation actions. Our security teams
constantly monitor our systems and are ready to intervene if an incident occurs. In the
context of work-from-home, there was also an acceleration of investment and initiatives
related to data loss protection.
We continuously upgrade our applications to better protect our systems and information.
We regularly monitor external trends in cyber security to ensure we are able to rapidly
mitigate known vulnerabilities.
We periodically benchmark our information security practices to assess areas of our cyber
security program that may require additional effort and to ensure we learn from industry
leading practices. We closely monitor external cyber-attacks and strive to continually learn
from them to improve our defences. A cyber breach simulation exercise was conducted in
2021 to strengthen preparedness related to cyber security incidents.
Our Information Technology Security Committee oversees information security initiatives
and ensures effective collaboration across teams. As part of our overall security program,
we provide employee information security awareness and training to enhance our ability
to resist cyber-attacks. In addition, our Enterprise Risk Committee oversees the
establishment of our cyber security strategy and monitors the progress of our mitigation
action plans. During 2021, cyber security awareness was continually provided to our
employees, with reminders about information security and privacy best practices in a
work-from-home context.
We renewed our cyber insurance to continue to mitigate a portion of the financial impact
in the event of a major cyber security incident affecting our operations.
INTACT FINANCIAL CORPORATION 89
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Failure of a major technology initiative
Risk we are facing
Operational risk
To maintain our performance levels in a world of digitalization, we are required to regularly modernize and enhance our systems. Often significant
time and investment are required for accomplishing these projects. Any unplanned delays, unforeseen costs, or unsuccessful execution of such
projects could lead to a significant decline in service levels, impact employee morale negatively and reduce our competitiveness. There is no
assurance that we will succeed in meeting our objectives for these projects. The RSA Acquisition adds incrementally to this risk given the presence
of legacy systems.
Potential impact
How we manage this risk
Our technology strategy may take too long to execute or may not be
adequate to maintain a competitive advantage. The complexity and
interdependence of our infrastructure and applications may lead to
higher costs and more errors. Implementation of new technology may
introduce more complexity in the interim prior to simplification after
decommissioning older systems. We could decide to abandon one or
more of our technology initiatives resulting in a material write down.
Quality and timelines related to IFRS 17 implementation could be
impacted as a result of complexity and added integration activities.
Inability to contain fraud and abuse
Risk we are facing
Senior management provides careful oversight and ensures that proper
funding and resources are allocated to our key projects. Risk assessments
and real-time internal audits are regularly conducted to identify potential
areas for remediation or the necessity for additional controls. A dedicated
committee ensuring proper focus is devoted to major technology projects.
A series of successful deliverables for our major personal lines policy
administration system offer proofs of our ability to deliver on this project
and mitigates the risk of failure.
We are actively working ahead of IFRS 17 implementation to support the
modernization of our financial reporting systems.
In 2021 we launched strategic projects to modernize and replace RSA’s
legacy systems. Processes are being enhanced and mitigating options
considered for key dependencies.
Operational risk
As a P&C insurer, we may be subject to internal or external fraud. Our insureds may exaggerate claims for personal gain. Despite our efforts
to control fraud and abuse, our staff, systems, and processes may be unable to accurately detect and prevent internal or external fraud. An economic
downturn could increase pressure on individuals and result in increased fraud and abuse. The work-from-home context brings additional challenges
to mitigating this risk.
Potential impact
How we manage this risk
Fraud may result in unanticipated
losses and a negative impact on
our
reputation. Our written
premiums and profitability can be
significantly
by
regulatory regimes that limit our
to detect and defend
ability
against fraudulent claims and
fraud rings.
affected
We have strong internal controls in place to prevent and detect potential internal fraud. Internal and external
audits are performed to verify that the controls are followed.
We are enhancing our fraud detection analytics which are used by our claims teams to detect potential fraud and
flag cases for further investigation. In Canada, we also have national investigative services and a number of
investigative tools to help detect and root out fictitious losses or injuries, staged accidents and material
misrepresentation or exaggeration of loss amounts or personal injury. In 2021 we became one of the founding
members of Équité Association.Through Équité, members have access to an advanced network dedicated to
detecting and preventing insurance fraud and crime, including: advanced analytics and countermeasures,
investigative services, intelligence education and engagement, and reporting on emerging threats and trends
Government authorities also have an incentive to help reduce fraud in the system and maintain affordable
insurance for consumers. Ontario Bill 15 – Fighting Fraud and Reducing Automobile Insurance Rates Act is one
example of government action that aims to reduce auto insurance fraud.
90 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Customer satisfaction risk
Risk we are facing
Strategic risk
Our insurance products and services are ultimately distributed to individual consumers and businesses. From time to time, unsatisfied customers,
consumer advocacy groups or the media may generate negative publicity related to our claims handling or underwriting practices. Untimely or poor
handling of such negative publicity may increase the impact of a situation and materially affect our reputation and growth prospects.
In addition, a lack of appropriate focus on customers’ needs and wants may threaten our ability to meet customer expectations, resulting in poor
customer retention.
In the current context, there is an increased risk of negative publicity related to the perception of not providing affordable insurance.
Potential impact
How we manage this risk
Negative publicity resulting from unsatisfied
customers may result in increased regulation
and legislative scrutiny of practices in the
P&C insurance industry as well as increased
litigation. Such events may further increase
our costs of doing business and adversely
affect our profitability by impeding our ability
to market our products and services,
requiring us to change our products or
services or increasing the regulatory burdens
under which we operate. The periodic
negative publicity around insurance and
related businesses may negatively impact our
financial results and financial condition.
Social media could amplify the impact of a
reputational issue. It could result in further
damage to our reputation and impair our
future growth prospects.
To mitigate these risks, we have established escalation procedures to help ensure that our
customers have multiple channels to express any dissatisfaction. These include a National
Customer Experience Team in Canada and an Ombudsman’s Office which offer the opportunity
for customer dissatisfaction to be resolved. In addition, management proactively identifies
potential issues and performs an additional review to help ensure that our customers are treated
fairly.
The wording of our insurance policies is reviewed periodically by management to detect and
remediate potential issues before they arise.
New products and significant changes in existing products undergo a rigorous product
development life cycle including an independent review by the risk management function prior to
launch. Potential reputational issues can be identified in the early stages of product development
and, if required, changes are implemented prior to launch
The Enterprise Risk Committee and regional risk committees regularly monitor our operations to
identify situations that can negatively affect customer satisfaction.
We also invest in digital tools and artificial intelligence to enhance the customer experience and
reduce the possibility of negative publicity arising from interactions with our customers. We are
closely monitoring our Net Promoter Scores from Claims and Underwriting to ensure that we
continue to deliver an experience to our customers that is second to none.
INTACT FINANCIAL CORPORATION 91
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Social unrest risk
Risk we are facing
Insurance risk
Potential catalysts for social unrest includes, but is not limited to, public health measure related to the pandemic, movements for social justice,
climate change inaction, economic downturn, labor shortage and supply chain issues could all spark social unrest. Geo-political tension, including
the use of political warfare, could exacerbate the risk of social unrest. The speed of communication and social media could amplify this risk or
facilitate the spread across jurisdictions. The ensuing physical conflict and violence could result in property damage impacting our underwriting
results and operations.
Potential impact
How we manage this risk
Social unrest events in high-density areas could
result in material losses on our automobile and
property business.
Social unrest could also disrupt our operations and
affect the security of our employees.
In 2020, we stress tested our exposures against a severe social unrest scenario. It concluded
that Intact has sufficient capital and reinsurance to absorb losses despite a material decline in
underwriting results and lower regulatory capital levels prior to management actions. A
playbook has been developed to manage our operations in a social unrest environment and a
number of actions were identified to help mitigate the impact of this risk on our personal and
commercial lines.
Third party risk
Risk we are facing
Operational risk
The acceleration of digitalization has increased the reliance on third parties and increases the risk of disruption to our operations. The work-from-
home context has increased our reliance on critical utilities/communications infrastructures. Moreover, the economic downturn increases supplier
failure risk and adds pressure on supply chain quality of service and capacity.
Potential impact
How we manage this risk
Our third parties may face internal and external
incidents that could compromise the confidentiality
of our information and/or limit the service level.
Widespread power grid, internet or phone failure
could limit our operations, impact our customer
support and lead
to substantial reputational
damages. Depending on the length of the failure,
significant opportunity costs could also be incurred.
We manage third party risk along the life cycle of our arrangements, from planning, due
diligence, contractual commitment, and ongoing management to termination. We have
deployed tools to help in assessing how third parties manage our information and what controls
they have in place. Levels of monitoring and mitigation are directly proportional to the level of
criticality of each third party.
To ensure the expected levels of service are delivered by our critical third-party service
providers, service level agreements are signed and added to relevant contracts.
In the context of the pandemic, we have increased the level of monitoring of our most critical
third parties and our supply chain providers. We are also reviewing our operational resilience
against potential outages of critical infrastructure.
Our cyber insurance could also mitigate a portion of the financial impact in the event of a third-
party incident affecting our operations.
92 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Employee defined benefit pension plan risk
Insurance risk
Risk we are facing
IFC is exposed to RSA UK&I’s large defined benefit pension plans with a total of £9 billion in pension liabilities. The plans are frozen and
closed to new entrants and future accruals. There are currently annual deficit removal payments of £75 million to be made until the deficit is
eliminated. There is a longevity risk that employees covered in the defined benefit pension plans live longer than expected resulting in higher than
expected pension costs.
IFC’s pension plans in Canada are adequately funded and smaller in size with a total of $3.7 billion in pension liabilities. The plans are open to new
entrants and future accruals.
Potential impact
How we manage this risk
Should the pension plan funding level
deteriorate, additional contributions may
need to be made to restore the plan position.
RSA has implemented a long-term de-risking program for its pension plans. RSA’s pension plans are
largely hedged against interest rate movements and inflation, while longevity risk remains a key risk
driver. We are working closely with RSA’s Pension Trustees as we consider measures to mitigate
longevity risk and further de-risk the plans.
Longevity risk could also add variability to the
balance sheet and income statements from
periodic re-valuation.
The occurrence of a solar storm
Risk we are facing
We recently took further action to partially hedge the Canadian pension fund exposure and purchased
annuities to reduce longevity and investment risk.
Emerging risk
A solar storm is caused by eruptions of mass and energy from the solar surface, resulting in the emittance of radiation at different wavelengths.
The sun is constantly releasing streams of x-ray and extreme ultra-violet radiation that travel outward at the speed of light.
Large areas of such activity can bundle to create a more powerful collection of matter called Coronal Mass Ejections (CME). These large masses of
gas and magnetic field energy can be directed at Earth producing strong electrical currents. These types of events are expected to occur in
approximately an 11-year cycle. The next cycle is expected to peak in 2024 or 2025.
Potential impact
How we manage this risk
The resulting disturbed magnetic activity can impact the electrical grid
system, radio communications, GPS and satellites orbiting the Earth.
Electrical service disruptions could lead to business interruption
losses and other covered losses, such as property damage.
In 2021, we conducted a solar storm risk assessment exercise to better
understand our exposure. The exercise confirmed the adequacy of our
catastrophe reinsurance capacity. We plan to continue researching new studies
related to solar storms and monitoring the evolution of insurance loss modelling.
33.7 Other risk factors that may affect future results
Legal risk
In addition to occasional employment-related litigation, we are a defendant in a number of claims relating to our insurance and other
related business operations. We may from time to time be subject to a variety of legal actions, including lawsuits, regulatory
examinations, investigations, audits and reassessments by various parties including customers, suppliers, and government regulatory
agencies and authorities, relating to our current and past business operations. Plaintiffs may also continue to bring new types of legal
claims against us. Current and future court decisions and legislative activity may increase our exposure to these types of claims.
Multiparty or class action claims may present additional exposure to substantial economic, non-economic or punitive damage awards.
The loss of even one of these claims, if it resulted in a significant damage award or a judicial ruling that was otherwise detrimental,
could have a material adverse effect on our results of operations and financial condition. Unfavourable claim rulings may render fair
settlements more difficult to reach. We cannot determine with any certainty what new theories of recovery may evolve or what their
impact may be on our businesses.
INTACT FINANCIAL CORPORATION 93
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Reinsurance risk
We use reinsurance to help manage our exposure to insurance risk, including major catastrophe events. The availability and
cost of reinsurance is subject to prevailing market conditions, both in terms of price and available capacity, which can affect
our premium volume, profitability and regulatory capital position. Worldwide catastrophe losses have an impact on the reinsurance
market. Reinsurance companies may exclude some coverage from the policies that we purchase from them or may alter the terms of
such policies from time to time. These gaps in reinsurance protection expose us to greater risks and greater potential losses and could
adversely affect our ability to write future business. Communicable disease exclusions are an example of protection that has been
added by most of our reinsurers. We may not be able to successfully mitigate risks through reinsurance arrangements, which could
cause us to reduce our premiums written in certain lines or could result in losses. In addition, the cost of reinsurance could increase
significantly year over year, impacting our profitability if we are unable to pass on these costs to consumers. Furthermore, a significant
decline in the availability of reinsurance could impact our premium volume, our profitability and our regulatory capital position.
People risk
Our success has been, and will continue to be, dependent on our ability to retain the services of key employees and to attract
additional qualified personnel in the future. In addition, a significant decline in employee morale could materially affect our
operations including an increase in the risk of human error or deliberate acts that harm the Company. The loss of the services of any
of our key employees, or the inability to identify, hire and retain other highly-qualified personnel in the future, could adversely affect the
quality and profitability of our business operations. We have developed a focused recruiting strategy to aggressively market careers
and opportunities at Intact. The strategy includes an updated web site, focused external recruiting, campaigns, rebranding, and targeted
advertising. It also includes partnering with four universities on graduate recruiting as well as commercial and personal lines trainee
program recruiting. Talent identification and development programs have been implemented to retain and grow existing talent. We also
have a comprehensive succession planning program at various levels within the organization to ensure we are prepared for unplanned
departures and retirements. Furthermore, our employee engagement surveys continue to reveal a high level of engagement among
employees. IFC was recognized by multiple organizations as one of Canada’s best employers. We believe that a high level of employee
engagement helps mitigate some of the operational risks associated with people. However, there is no assurance that the Company
will be successful in retaining and motivating our key talent across the organization.
COVID-19 pandemic has accelerated labour shortages, competition for labour is increasing and candidates' expectations are changing.
In addition to the above, a number of actions have been implemented to mitigate these trends: human resource restructurings,
compensation reviews and a deep dive to identify sectors experiencing challenges and issues and better understand the underlying
rationale.
Employee development, onboarding and knowledge transfer can prove challenging in the work-from-home environment. A stretch in
resources and increased pace of some projects could lead to further employee fatigue, mental health issues, as well as loss of staff
through disability, extended leaves, early retirement and turnover. High levels of employee engagement, robust human resource
programs to support our employees and our return -to-office strategy helps mitigate this risk.
The risk of business interruption to our operations
We may experience an abrupt interruption of activities caused by unforeseeable and/or catastrophe events, an example
being a global pandemic or a large-scale cyber-attack. Our service levels may decline materially resulting in negative financial
and reputational consequences. Losses can relate to property, financial assets, trading positions and key personnel. If our business
continuity plans cannot be put into action or do not take such events into account, losses may increase further.
We continuously monitor world events to enable us to pro-actively adapt our response plan. In order to maintain the integrity and
continuity of our operations in the event of a crisis, we have developed personalized alert and mobilization procedures as well as
communication protocols. For example, emergency action plans, business continuity plans, business recovery plans, major health crisis
plans, building evacuation plans and crisis communication plans have all been defined and are tested on an ongoing basis. This process
is supported by a crisis management structure adapted to our organization and to the type of events we may have to manage.
Our operational resilience has increased during the COVID-19 pandemic and a number of lessons learned were integrated.
Credit downgrade risk
Independent third- party rating agencies assess our ability to honour our financial obligations (the “senior unsecured debt rating”) and
our insurance subsidiaries’ ability to meet their ongoing policyholder obligations (the “financial strength rating”). See Section 29.6 –
Ratings for more details on ratings.
The rating agencies periodically evaluate us to confirm that we continue to meet the criteria of the ratings previously assigned to us.
94 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
We may not be in a position to maintain either the issuer credit ratings or the financial strength ratings we have received from the rating
agencies. An issuer credit rating downgrade could result in materially higher borrowing costs. A financial strength rating downgrade
could result in a reduction in the number of insurance contracts we write and in a significant loss of business; such business could
move to other competitors with higher ratings, thus causing premiums and earnings to decrease.
This is more applicable to our commercial insurance where clients place a higher emphasis on such ratings. Credit downgrades may
affect our ability to raise capital or may result in an increase in the cost of raising capital with negative implications for shareholders and
other stakeholders.
Limit on dividend and capital distribution risk
As a holding company, IFC is a legal entity and is separate and distinct from its operating subsidiaries, most of which are regulated
insurance companies. While no regulatory approval is required for dividend payments from the regulated insurance companies, notice
to OSFI is required together with pro forma capital calculations showing internal target capital levels are maintained both before and
after such dividends are paid out. Our regulated subsidiaries in the US and UK are also subject to limitations on capital distributions as
set out in applicable regulations. In addition, for competitive reasons, our insurance subsidiaries maintain financial strength ratings
which require us to maintain minimum capital levels in our insurance subsidiaries. These regulations and ratings targets limit the ability
of our insurance subsidiaries to pay unlimited dividends or invest all of their capital in other ways. In certain stress scenarios limitations
on our subsidiaries’ ability to pay dividends to IFC could have a material adverse effect on our ability to pay shareholder dividends and
may result in a material decline in the price of securities we have issued.
As a result of the COVID-19 pandemic and financial market turbulence, many regulators (including in Canada) have increased scrutiny
on upstream dividend payments. We stress tested our ability to maintain dividend payments at the holding company level even if
upstream dividends were severely restricted. The outcome of these stress tests was satisfactory.
Distribution risk
Distribution risk is the risk related to the distribution of our P&C insurance products. It includes the inherent risk of dealing with
independent distributors, the risk related to new market entrants and the risk associated with our multiple distribution channel strategy.
We may also face the risk that one of our channels or business models would not be sustainable in a specific market or context. From
time to time we issue loans or take equity participation in certain brokers and consequently, we expose ourselves to other risks including
financial risk and regulatory risk. For various reasons, the broker channel has been in a consolidation mode for the last few years and
we believe that this situation will continue. The acquisition of brokers by others or even by other insurers may impact our relationship
with some of them and harm our ability to grow our business. In order to maintain strong relationships with brokers, each relationship
is managed by officers in each of the main regions in which we operate. To mitigate the financial risk arising from loans to brokers we
generally receive guarantees and use standard agreements which contain general security and oversight clauses. The Board of
Directors participates in this oversight process by reviewing these activities periodically.
33.8 Own Risk and Solvency Assessment
Since 2014, we have conducted an Own Risk and Solvency Assessments (“ORSA”) for Intact Financial Corporation at least annually.
ORSA encompasses processes to identify, assess, monitor, and manage the risks we take in conducting our business. ORSA also
covers the determination of our capital needs and solvency position. ORSA is an integral part of the implementation of our Enterprise
Risk Management Policy. The ORSA process is well integrated into our operations and influences the definition of our corporate risk
tolerance, the target levels of capital by jurisdiction and in aggregate, and underwriting profit targets by line of business. See Section 28
– Capital management for details.
In early 2021, an Ad Hoc ORSA Process was performed in the context of the potential acquisition of RSA. The process concluded that
our financial condition remained robust and sufficient to pay our obligations, including planned dividends, considering our risk exposures
and the level of available financial resources post-close of the transaction.
In Q2-2021, our annual ORSA Process revealed that the financial resources of our insurance subsidiaries are sufficient to meet
policyholder obligations after adverse situations at a confidence level of 99.5% Value-at-Risk (VaR) over a one-year time horizon.
Following the acquisition, the results indicate improved diversification across segments and geographies, a lower financial risk and a
temporary increase in operational risk related to the large-scale integration.
INTACT FINANCIAL CORPORATION 95
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 34 - Off-balance sheet arrangements
34.1 Securities lending
We participate in a securities lending program to generate fee income. This program is managed by our custodian, a major Canadian
financial institution, whereby we lend securities we own to other financial institutions to allow them to meet their delivery commitments.
We loaned securities, which are reported as investments in the Consolidated financial statements, with a fair value of $3,036 million as
at December 31, 2021 ($1,054 million as at December 31, 2020).
Collateral is provided by the counterparty and is held in trust by the custodian for our benefit until the underlying security has been
returned to us. The collateral cannot be sold or re-pledged externally by us, unless the counterparty defaults on its financial obligations.
Additional collateral is obtained or refunded on a daily basis as the market value of the underlying loaned securities fluctuates. The
collateral consists of government securities with an estimated fair value of 104% of the fair value of the loaned as at December 31,
2021 (105% as at December 31, 2020).
34.2 Structured settlements
We also enter into annuity agreements with various Canadian life insurance companies. We have obligations to pay certain fixed
amounts to claimants on a recurring basis and thus have purchased annuities from life insurers to provide for those payments. These
annuity agreements are reported as financial liabilities in the Consolidated financial statements, with a fair value of $1,859 million as at
December 31, 2021 ($1,552 million as at December 31, 2020).
When these annuity agreements are non-commutable, non- assignable and non-transferable, we are released by the claimant for the
settlement of the claim amount and can therefore derecognized that financial liability from the Consolidated balance sheets. It should
be noted that we remain exposed to the risk that life insurers may fail to fulfill their obligations. However, this credit risk is reduced since
we deal with registered life insurers, which is mitigated by an industry compensation scheme. In addition, the credit risk is further
mitigated by an industry compensation scheme which would assume a significant majority of the remaining outstanding obligations in
case of a life insurer defaults.
96 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 35 - Sensitivity analysis to market risk
Sensitivity analysis is a risk management technique that assists management in ensuring that risks assumed remain within our risk
tolerance level. Sensitivity analysis involves varying a single factor to assess the impact that this would have on our results and financial
condition, excluding any management action. Actual results can differ materially from these estimates for a variety of reasons and
therefore, these sensitivities should be considered as directional estimates.
Table 42 – Sensitivity analysis to market risk (after tax)
For the years ended December 31,
Equity price risk
Common share prices (10% decrease)1
Preferred share prices (5% decrease)2
Property price risk (10% decrease)
Interest rate risk (100 basis point increase)
Debt securities3,4
Net claims liabilities
Defined benefit pension plan obligation, net of related debt securities
Currency risk5
Strengthening of CAD by 10% vs all currencies
Net assets of foreign operations in:
USD
GBP
Currency derivatives related to RSA Acquisition
Strengthening of GBP by 10% vs EUR
Net
income
OCI
BVPS
Net
income
OCI BVPS
2021
2020
27
19
(51)
(237)
378
-
(446)
(88)
(40)
(445)
-
11
(2.38)
(0.39)
(0.52)
(3.87)
2.15
0.06
11
12
-
(221)
(68)
(1.47)
(0.39)
-
-
(198)
200
-
(197)
-
130
(2.76)
1.40
0.91
10
8
-
(305)
(411)
-
(1.68)
(2.29)
-
6
-
-
(196)
-
(283)
(1.33)
-
(1.98)
Currency derivatives related to RSA Acquisition
(0.36)
1 Including the impact of common shares (net of any equity hedges, including the impact of any impairment) or investment property related to the defined
(52)
-
-
-
-
benefit pension plan.
2 Including the impact on related embedded derivatives.
3 Excludes the impact of debt securities related to the defined benefit pension plan.
4 Interest rate sensitivity is based on the fixed-income portfolio, which comprises approximately 45% of government -related securities and 55% of
corporate-related securities.
5 After giving effect to forward-exchange contracts.
The sensitivity analysis was prepared using the following assumptions:
−
−
−
−
−
shifts in the yield curve are parallel;
interest rates, equity prices, property prices and foreign currency move independently;
credit, liquidity, spread and basis risks have not been considered;
impact on our pension plans has been considered; and
risk reduction measures perform as expected, with no material basis risk and no counterparty defaults.
AFS debt or equity securities in an unrealized loss position, as reflected in AOCI may be realized through sales in the future.
A decline in the price of AFS perpetual preferred shares is recorded in OCI and would normally lead to a lower valuation for associated
embedded derivative liabilities which are recorded as gains in Net income. Conversely, an increase in the price of these preferred
shares is also recorded in OCI and would normally lead to a higher valuation for associated embedded derivative liabilities which are
recorded as losses in Net income.
INTACT FINANCIAL CORPORATION 97
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
ADDITIONAL INFORMATION
Section 36 - Financial KPIs and definitions
36.1 Our financial KPIs
Our most relevant key performance indicators are outlined in the table below. See Section 38 – Non-GAAP and other financial measures
for the definition and reconciliation to the most comparable IFRS measures.
Growth
Operating DPW growth
Growth in constant currency
Underwriting
performance
Claims ratio
Expense ratio
Combined ratio
2021
2020
2019
2018
2017
43.6%
45.0%
55.9%
32.9%
88.8%
9.1%
8.7%
9.5%
9.1%
15.6%
15.4%
5.5%
5.5%
57.8%
66.0%
65.3%
65.4%
31.3%
29.4%
29.8%
28.9%
89.1%
95.4%
95.1%
94.3%
Underwriting income
1,787
1,227
Consolidated
performance
Net investment income
Distribution income
NOI
NOIPS (in dollars)
OROE
ROE
AROE
EPS (in dollars)
AEPS (in dollars)
BVPS (in dollars)
MCT (Canada)
Financial
strength
SCR (UK&I)
RBC (US)
Total capital margin
706
362
2,070
12.41
17.8%
17.0%
21.0%
12.40
15.32
82.34
206%
180%
448%
2,891
577
275
1,471
9.92
18.4%
12.8%
15.0%
7.20
8.48
58.79
224%
n/a
469%
2,729
465
576
209
905
6.16
12.5%
10.0%
11.4%
5.08
5.75
53.97
198%
n/a
457%
1,222
474
541
175
839
5.74
12.1%
9.9%
11.8%
4.79
5.70
48.73
201%
n/a
377%
1,333
486
448
158
771
5.60
12.9%
12.8%
13.0%
5.75
5.82
48.00
205%
n/a
459%
1,135
Adjusted debt-to-total capital ratio
23.0%
24.1%
21.3%
22.0%
23.1%
98 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 37 - Non-operating results
Non-operating results, a non-IFRS financial measure, include elements that are not representative of our operating performance
because they relate to special items, bear significant volatility from one period to another, or because they are not part of our normal
activities. As a result, these elements are excluded from the calculation of NOI and related financial measures.
Table 43 – Non-operating results
Q4-2021
Q4-2020
Change
2021
2020
Change
Net gains (losses)
Gains (losses) excluding FVTPL bonds
(Table 15)
Realized and unrealized gains (losses) on
FVTPL bonds
Positive (negative) impact of MYA on underwriting
Amortization of intangible assets recognized in
business combinations
Acquisition, integration and restructuring costs
Acquisition costs
Net ADC cost
Other integration costs
Restructuring and other costs
Acquisition, integration and restructuring costs
Non-operating pension expense
Gain on the RSA Acquisition1
Underwriting results from exited lines
Other
262
(68)
72
(63)
(5)
(71)
(41)
(16)
(133)
(16)
-
(35)
(2)
53
(7)
(23)
(40)
(42)
-
(6)
(5)
(53)
(13)
-
(39)
(3)
Non-operating gains (losses)
1 See Note 5 – Business combination of the Consolidated financial statements for details.
17
(125)
209
516
(55)
571
(61)
95
(23)
37
(71)
(35)
(11)
(80)
(3)
-
4
1
142
(267)
226
237
(315)
(504)
541
(199)
(154)
(45)
(90)
(71)
(214)
(54)
(429)
(64)
204
(53)
(4)
(70)
(42)
-
(55)
(18)
(115)
(53)
-
(62)
(18)
(535)
(48)
(71)
(159)
(36)
(314)
(11)
204
9
14
465
INTACT FINANCIAL CORPORATION 99
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 38 - Non-GAAP and other financial measures
Non-GAAP financial measures and Non- GAAP ratios (which are calculated using non-GAAP financial measures) do not have
standardized meanings prescribed by IFRS (or GAAP) and may not be comparable to similar measures used by other companies in
our industry. Non -GAAP and other financial measures are used by management and financial analysts to assess our performance.
Further, they provide users with an enhanced understanding of our financial results and related trends, and increase transparency and
clarity into the core results of the business.
Non- GAAP financial measures and Non-GAAP ratios used in this MD&A and other Company’s financial reports include measures
related to our consolidated performance (see Section 38.1 to Section 38.3), our underwriting performance (see Section 38.4
and Section 38.5) and our financial strength (see Section 38.6).
38.1 Operating performance
NOIPS, OROE, NOI and PTOI
• Our operating performance is measured based on NOIPS and OROE, which are non-GAAP ratios. These ratios are calculated
using Non- GAAP financial measures that exclude elements that are not representative of our operating performance (referred to as
“Non- operating results”). Non-operating results include elements that arise mostly from changes in market conditions, relate to
acquisition-related items or special items, or that are not part of our normal activities (see Non-operating results hereafter). We
believe that analyzing our consolidated performance excluding these elements reflects more accurately our underlying business
performance over time.
• We note that investors, financial analysts, rating agencies and media organizations use NOIPS, OROE and other components of
operating income (such as underwriting income, net investment income and distribution income) to evaluate and report our financial
performance, and make investment decisions and recommendations. These measures are widely used as they represent a reliable,
representative and consistent measure of our financial performance over time.
• NOIPS is also used in incentive compensation as one of our financial objectives is to grow NOIPS by 10% yearly over time. See
Section 22.2 – Growth NOIPS by 10% yearly over time.
NOIPS and OROE are calculated as follows, using the following non -GAAP financial measures (marked with an asterix*).
NOIPS
for a specific period
NOI* attributable to common shareholders
WANSO 1
OROE
for a 12-month period
NOI* attributable to common shareholders
Adjusted average common shareholders’
equity (excluding AOCI)* (Section 38.6)
1 Weighted-average number of common shares outstanding on a daily basis during the period.
• Net operating income (NOI)* represents the Net income attributable to shareholders (most directly comparable GAAP measure),
excluding the after-tax impact of Non- operating results. NOI is net of net income (loss) attributable to non-controlling interests. See
Table 44 – Reconciliation of NOI, NOIPS and OROE to Net income attributable to shareholders, as reported under IFRS.
• Pre-tax operating income (PTOI)*, which is used in the calculation of NOI, represents the Income before income taxes (most
directly comparable GAAP measure), including the Share of income tax expense (benefit) of broker associates (accounted for using
the equity method – net of tax – under IFRS), and excluding the pre-tax impact of Non- operating results. See Table 45 –
Reconciliation of PTOI to Income before income taxes, as reported under IFRS. PTOI is comprised of the following items:
o Underwriting income (loss)* is an operating measure calculated as Operating NEP* less Operating net claims*, less
Operating net underwriting expenses* (as described in Section 38.5 – Underwriting profitability). Underwriting income
(loss) represents Net earned premiums, Other underwriting revenues, Net claims incurred and Underwriting expenses,
all of which are reported under IFRS, excluding the impact of MYA on underwriting results, non-operating pension expense
and underwriting results from exited lines
o Net investment income – calculated as Investment income less Investment expenses, as reported under IFRS. See
Table 14 – Net investment income for details.
o Distribution income* is the measure used to report the performance of our distribution channel, which includes operating
income before interest and taxes from our consolidated brokers, broker associates, Intact Public Entities, On Side, Coast
Underwriters and Johnson Group Benefits. Distribution income is calculated using components of Other income and Other
expenses (for our consolidated entities) and Share of profit from investments in associates and joint ventures (for those
that we do not consolidate) under IFRS.
100 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
o Total finance costs* are comprised of Finance costs (most directly comparable GAAP measure), adjusted to include
finance costs from our broker associates, which are accounted for using the equity method under IFRS (included in Share
of profit from investments in associates and joint ventures under IFRS).
o Other operating income (expense)* includes general corporate expenses related to the operation of the group and our
public company status, consolidation adjustments, and other operating items. Other operating income (expense) is
calculated using components of Other income and Other expenses under IFRS.
See Table 46 – Reconciliation of Distribution income, Total finance costs, Other operating income (expense), Total
income taxes and Underwriting income with the Consolidated financial statements
• PTOI on a segment basis, which is determined in the same manner as PTOI, increases transparency and clarity of the core results
of the business. See Table 3 – Operating performance by segment for the details of PTOI by component and segment.
Non-operating results
• Non-operating results* include elements that arise mostly from changes in market conditions, relate to acquisition-related items
or special items, or that are not part of our normal activities. They are comprised of the following items:
o Net gains (losses), as reported under IFRS, arise mostly from changes in market conditions and investment decisions,
which can be volatile to earnings. See Section 10.3 – Net gains (losses) excluding FVTPL bonds.
o Positive (negative) impact of MYA on underwriting arise mostly from movements in interest rates, which can be volatile
to earnings. Claims liabilities are discounted at the estimated market yield of the assets backing these liabilities. The
impact of changes in the discount rate used to discount claims liabilities based on the change in the market-based yield
of the underlying assets is referred to as MYA. MYA is included in Net claims incurred under IFRS.
o The non-operating pension expense represents the difference between the asset return (interest income on plan
assets) calculated using the expected return on plan assets versus the IFRS discount rate on Intact’s Canadian pension
plan assets. The expected return better reflects our operating performance given our internal investment management
expertise and the composition of our pension asset portfolio. The non-operating pension expense is included in Net claims
incurred and Underwriting expenses under IFRS.
o Acquisition, integration and restructuring costs, as reported under IFRS. Acquisition and integration costs incurred
in connection with an acquired business do not represent an ongoing operating expense of the business. See Section 37
– Non-operating results for details.
Acquisition costs include professional fees and stamp duties related to the closing of an acquisition.
Integration costs include restructuring costs related to an acquisition such as severances, retention bonuses
and system integration, the initial net impact of a reinsurance coverage for the purpose of an acquisition, as well
as changes in the fair value of the contingent considerations. With respect to the RSA Acquisition, ADC costs
represent the net impact of a reinsurance coverage pursuant to which a third-party reinsurer will assume 50% of
negative reserve development in excess of an agreed retention with respect to certain of RSA's UK&I and other
claims liabilities for accident years 2020 and prior.
Restructuring and other costs include restructuring costs not related to an acquisition and expenses related
to the implementation of significant new accounting standards.
o Gain on the RSA Acquisition (gain on bargain purchase), as reported under IFRS, is non-taxable and represents the
difference between the purchase price paid for RSA and the fair value of the identifiable net assets acquired less the
amount of NCI. It is reported in non-operating results, consistent with other gains and losses, and given its special nature.
See Note 5 – Business combination to the Consolidated financial statements for details.
o Underwriting results from exited lines included the underwriting results of the US Commercial’s business Programs,
Architects and Engineers, Healthcare (effective July 1, 2019), BC auto exit (effective in Q4-2020), as well as UK&I exited
lines as of the closing date. Underwriting results from exited lines are included in NEP, Net claims incurred and
Underwriting expenses under IFRS. We believe that such results could obscure the ability to compare period over period
results for our ongoing businesses.
INTACT FINANCIAL CORPORATION 101
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Table 44 - Reconciliation of NOI, NOIPS and OROE to Net income attributable to shareholders, as reported under IFRS
Net income attributable to shareholders, as reported under IFRS
Remove: Pre-tax non-operating losses (gains) (Table 43)
Remove: Non-operating tax expense (benefit)1
NOI (Table 45)
Remove: preferred share dividends
NOI attributable to common shareholders
Divided by weighted-average number of common shares (in millions)
NOIPS, basic and diluted (in dollars)
NOI to common shareholders for the last 12 months
Adjusted average common shareholders’ equity, excluding AOCI (Table 59)
OROE for the last 12 months
2021
2,067
70
(67)
2,070
(53)
2,017
162.4
12.41
2020
1,082
535
(146)
1,471
(52)
1,419
143.0
9.92
Q4-2021 Q4-2020
378
692
(17)
4
679
(13)
666
176.1
3.78
2,017
11,357
17.8%
125
(36)
467
(13)
454
143.0
3.18
1,419
7,697
18.4%
1 See Table 48 - Acquisition-related gains (losses) and other non-operating gains (losses) for more details.
Table 45 - Reconciliation of PTOI to Income before income taxes, as reported under IFRS
Income before income taxes, as reported under IFRS
Add: share of income tax expense of broker associates
Remove: Pre-tax non-operating losses (gains) (Table 43)
PTOI
PTOI
Add: operating income tax expense
Netted with: net income (loss) attributable to NCI
NOI (Table 44)
Q4-2021 Q4-2020
470
871
4
(17)
858
858
(170)
(9)
679
5
125
600
600
(133)
-
467
2021
2,568
30
70
2,668
2,668
(577)
(21)
2,070
2020
1,359
22
535
1,916
1,916
(445)
-
1,471
102 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Table 46 – Reconciliation of Distribution income, Total finance costs, Other operating income (expense), Total income taxes and Underwriting income
with the Consolidated financial statements
MD&A captions
Pre-tax
Other
Total
operating
Total
Non-
As presented in the Financial statements
income
costs
Distribution
finance
income
(expense)1
income
taxes
operating
Underwriting
Total F/S
losses
income
caption
For the quarter ended December 31, 2021
Underwriting income1 (Table 55)
Other revenues
Net gains (losses)
Gain on bargain purchase
Share of profits from invest. in ass. & JV
Finance costs
Acquisition, integration and restructuring costs
Other expenses
Income tax benefit (expense)
Total, as reported in MD&A
For the quarter ended December 31, 2020
Underwriting income1 (Table 55)
Other revenues
Net gains (losses)
Share of profits from invest. in ass. & JV
Finance costs
Acquisition, integration and restructuring costs
Other expenses
Income tax benefit (expense)
Total, as reported in MD&A
For the year ended December 31, 2021
Underwriting income1 (Table 55)
Other revenues
Net gains (losses)
Gain on bargain purchase
Share of profits from invest. in ass. & JV
Finance costs
Acquisition, integration and restructuring costs
Other expenses
Income tax benefit (expense)
Total, as reported in MD&A
For the year ended December 31, 2020
Underwriting income1 (Table 55)
Other revenues
Net gains (losses)
Share of profits from invest. in ass. & JV
Finance costs
Acquisition, integration and restructuring costs
Other expenses
Income tax benefit (expense)
Total, as reported in MD&A
-
98
-
-
27
-
-
(48)
-
77
-
82
-
32
-
-
(42)
-
72
-
389
-
-
146
-
-
(173)
-
362
-
309
-
121
-
-
(155)
-
275
-
-
-
-
(1)
(42)
-
-
-
(43)
-
-
-
(3)
(29)
-
-
-
(32)
-
-
-
-
(9)
(153)
-
-
-
(162)
-
-
-
(11)
(115)
-
-
-
(126)
-
10
-
-
-
-
-
(6)
-
4
-
9
-
-
-
-
(7)
-
2
-
32
-
-
-
-
-
(57)
-
(25)
-
18
-
-
-
-
(55)
-
(37)
-
-
-
-
(4)
-
-
-
(170)
(174)
-
-
-
(5)
-
-
-
(92)
(97)
-
-
-
-
(30)
-
-
-
(480)
(510)
-
-
-
(22)
-
-
-
(277)
(299)
21
-
194
-
(6)
-
(133)
(59)
-
17
(75)
-
46
(7)
-
(53)
(36)
-
600
-
-
-
-
-
-
-
-
600
415
-
-
-
-
-
-
-
(125)
415
109
-
249
204
(20)
-
(429)
(183)
-
(70)
(430)
-
182
(36)
-
(115)
(136)
-
(535)
1,787
-
-
-
-
-
-
-
-
1,787
1,227
-
-
-
-
-
-
-
1,227
621
108
194
-
16
(42)
(133)
(113)
(170)
340
91
46
17
(29)
(53)
(85)
(92)
1,896
421
249
204
87
(153)
(429)
(413)
(480)
797
327
182
52
(115)
(115)
(346)
(277)
1 Comprised of the following captions in the Consolidated statements of income: Net earned premiums, Other underwriting revenues, Net claims incurred
and Underwriting expenses.
INTACT FINANCIAL CORPORATION 103
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
38.2 Relative performance
Adjusted net income, AEPS and AROE
• Our relative performance is measured based on AEPS and AROE, which are Non- GAAP ratios. These ratios are calculated using
Non-GAAP financial measures that exclude the impact of acquisition-related items (as detailed hereafter). We believe that analyzing
our consolidated performance excluding these items reflect more accurately our financial performance compared to our peers over
time.
• One of our key financial objectives is to exceed industry ROE by 500 basis points annually (refer to Section 22.1 – Exceed industry
ROE by 5 points for more details). For industry comparison and incentive compensation purposes, IFC’s ROE corresponds to IFC’s
AROE, which we believe is the most comparable to the industry.
AEPS and AROE are calculated using the following non-GAAP financial measures (marked with an asterix*).
AEPS
for a specific period
Adjusted net income* attributable to common
shareholders
AROE
for a 12-month period
WANSO
Adjusted net income* attributable to
common shareholders
Adjusted average common shareholders'
equity* (Section 38.6)
• Adjusted net income* attributable to shareholders represents the Net income attributable to shareholders (most directly
comparable GAAP measure), excluding the after-tax impact of Acquisition-related items. Adjusted net income attributable to
shareholders is net of net income (loss) attributable to non-controlling interests. See Table 47 – Reconciliation of AEPS and AROE
to Net income attributable to shareholders, as reported under IFRS.
Table 47 – Reconciliation of AEPS and AROE to Net income attributable to shareholders, as reported under IFRS
Q4-2021
Q4-2020
Net income attributable to shareholders, as reported under IFRS
Adjustments, after tax (see Table 48 for details)
Remove: amortization of intangibles recognized in business combinations
Remove: acquisition and integration costs
Remove: net gain on currency derivative hedges (acquisitions)
Remove: tax adjustments on acquisition-related items
Adjusted net income attributable to shareholders
Remove: preferred share dividends
Adjusted net income attributable to common shareholders
Divided by weighted-average number of common shares (in millions)
AEPS, basic and diluted (in dollars)
Adjusted net income attributable to common shareholders for the last
12 months
Adjusted average common shareholders’ equity (Table 59)
AROE for the last 12 months
692
48
93
25
(13)
845
(13)
832
176.1
4.72
2,486
11,826
21.0%
378
30
41
(16)
-
433
(13)
420
143.0
2.94
1,213
8,064
15.0%
2021
2,067
151
297
23
1
2,539
(53)
2,486
162.4
15.32
2020
1,082
117
79
(16)
3
1,265
(52)
1,213
143.0
8.48
104 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Acquisition-related items
• Acquisition-related items, which are reported in Non-operating gains (losses)*, include amortization of intangible assets
recognized in business combinations, as well as acquisition and integration costs. See Table 48 below and Section 38.1 – Operating
performance for details.
The following table provides the breakdown of non-operating results between acquisition-related items and other non-operating results,
showing the pre-tax and after-tax amount by line item.
Table 48 – Acquisition-related gains (losses) and other non-operating gains (losses)
Q4-2021
Q4-2020
2021
2020
Pre-tax After-tax Pre-tax After-tax
Pre-tax After-tax Pre-tax After-tax
Amortization of intangible assets recognized in
business combinations
Acquisition and integration costs
Net gain (loss) on currency derivative hedges
(acquisitions)
Tax adjustment on acquisition-related items
(63)
(117)
(34)
-
(48)
(93)
(25)
13
Acquisition-related gains (losses)
(214)
(153)
Other net gains (losses)
Positive (negative) impact of MYA on underwriting
Non-operating pension expense
Gain on the RSA Acquisition
Underwriting income (loss) from exited lines
Restructuring and other non-operating costs
Other non-operating gains (losses)
Non-operating gains (losses)
228
72
(16)
-
(35)
(18)
231
17
164
55
(12)
-
(28)
(13)
166
(40)
(48)
19
-
(69)
27
(23)
(13)
-
(39)
(8)
(56)
(30)
(41)
16
-
(55)
31
(18)
(10)
-
(30)
(7)
(34)
(89)
(199)
(375)
(151)
(297)
(154)
(97)
(31)
-
(23)
(1)
(605)
(472)
232
169
(47)
204
(43)
(46)
469
280
226
(64)
204
(53)
(58)
535
(70)
19
-
(232)
163
(315)
(53)
-
(62)
(36)
(303)
(117)
(79)
16
(3)
(183)
148
(235)
(39)
-
(49)
(31)
(206)
(389)
13
(125)
(3)
(535)
INTACT FINANCIAL CORPORATION 105
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
38.3 Consolidated performance
ROE and Adjusted average common shareholder’s equity
• Our consolidated performance is measured based on EPS (GAAP) and ROE, a Non-GAAP ratio. ROE is based on Net income
attributable to common shareholders. However, the denominator is adjusted to reflect the weighted-impact of significant capital
transactions.
• EPS and ROE are calculated as follows. Non- GAAP financial measures are marked with an asterix*.
EPS
for a specific
period
As reported in the accompanying
Consolidated statements of income
Net income attributable to common
shareholders
WANSO
ROE
for a 12-month
period
Net income attributable to common shareholders
Adjusted average common shareholders' equity*
(Section 38.6)
• Net income attributable to common shareholders is determined in accordance with IFRS excludes the dividends declared on
preferred shares.
Table 49 – Reconciliation of ROE to Net income attributable to shareholders, as reported under IFRS
Net income attributable to shareholders
Remove: preferred share dividends
Net income attributable to common shareholders
Divided by weighted-average number of common shares (in millions)
EPS, basic and diluted (in dollars)
Net income attributable to common shareholders for the last 12 months
Adjusted average common shareholders’ equity (Table 59)
ROE for the last 12 months
2021
2,067
(53)
2,014
162.4
12.40
2020
1,082
(52)
1,030
143.0
7.20
Q4-2021
Q4-2020
692
(13)
679
176.1
3.85
2,014
11,826
17.0%
378
(13)
365
143.0
2.55
1,030
8,064
12.8%
Table 50 – Reconciliation of AEPS and NOIPS to EPS, as reported under IFRS
Q4-2021
Q4-2020
2021
2020
After-tax Per share After-tax Per share After-tax Per share After-tax Per share
Net income attributable to
common shareholders (EPS)
Add back: acquisition-related losses
(gains) (Table 48)
Adjusted net income attributable
to common shareholders (AEPS)
Add back: Other non- operating
losses (gains) (Table 48)
NOI attributable to common
shareholders (NOIPS)
679
153
832
3.85
0.87
4.72
365
2.55
2,014
12.40
1,030
7.20
55
0.39
472
2.92
183
1.28
420
2.94
2,486
15.32
1,213
8.48
(166)
(0.94)
34
0.24
(469)
(2.91)
206
1.44
666
3.78
454
3.18
2,017
12.41
1,419
9.92
106 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Effective income tax rates
• Our effective income tax rates are measured based on Total effective income tax rate and Operating effective income tax
rate, which are Non- GAAP ratios. These ratios take into account the impact of income taxes from our broker associates, which are
accounted for using the equity method (net of tax) under IFRS.
Total effective income tax rate and Operating effective income tax rate are calculated using the following non-GAAP financial measures
(marked with an asterix*).
Total effective
income tax rate
for a specific
period
Total income tax expense (benefit)*
Pre-tax income*
Operating effective
income tax rate
for a specific
period
Operating income tax expense (benefit)*
PTOI* (Section 38.1)
•
Total income tax expense (benefit) and Operating income tax expense (benefit) include the impact of income taxes from our
broker associates, which are accounted for using the equity method (net of tax) under IFRS. See table 46 – Reconciliation of
Distribution income, Total finance costs, Other operating income (expense), Total income taxes and Underwriting income with the
Consolidated financial statements. Pre-tax income and PTOI are presented on a consistent basis. These Non-GAAP financial
measures are aligned with how management analyzes the operating performance of our broker associates (recorded in Distribution
income), which is on a pre-tax basis.
Table 51 – Reconciliation of effective income tax rates
Income before income taxes, as reported under IFRS
Add: share of income tax expense of broker associates
Pre-tax income
Total income tax benefit (expense) (Table 46)
Total effective income tax rate, as reported in the MD&A
Pre-tax operating income (PTOI) (Table 45)
Operating income tax benefit (expense)
Operating effective income tax rate, as reported in the MD&A
Q4-2021 Q4-2020
871
4
875
(174)
470
5
475
(97)
20.1%
20.4%
858
(170)
600
(133)
19.8%
22.1%
2021
2,568
30
2,598
(510)
19.6%
2,668
(577)
21.6%
2020
1,359
22
1,381
(299)
21.7%
1,916
(445)
23.2%
INTACT FINANCIAL CORPORATION 107
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
38.4 Premiums volume
Change in operating DPW and Change in operating DPW in constant currency
• Our top line consolidated performance (in terms of premiums written) is measured based on Change in operating DPW in
constant currency, which is a non- GAAP ratio. This ratio represents the growth (or decline) in O perating DPW (as defined below)
calculated by applying the exchange rate in effect for the current year to the Operating DPW of the previous year.
• With the RSA Acquisition, approximately 65% of our operating DPW are denominated in CAD, 19% in GBP, 10% in USD, and the
remaining, mainly in Euro. See Section 39.4 – Foreign currency rates. Constant currency is widely used by multinational companies
to highlight the economic performance. Like our peers, we believe that this measure enhances the analysis of our top line
performance with comparative periods as it excludes the impact of foreign exchange fluctuations.
•
•
The top line segmented performance of our non- canadian operating segments, as applicable, is also measured based on the
Change in operating DPW in constant currency, which reflects the Operating DPW growth, as reported and managed at the
segment level (in the functional currency).
In our MD&A or other financial reports, we also present Change in operating DPW, which is a Non-GAAP ratio. This ratio
represents the growth or decline in O perating DPW (as defined below) calculated by applying the respective exchange rates in
effect for the current year and previous year. When relevant, we disclose both ratios to highlight the impact of foreign currency
fluctuations on our top line performance.
Change in
operating DPW
Operating DPW for a specified period
–
Operating DPW for the previous year
Operating DPW for the previous year
Change in operating
DPW
in constant currency
Operating DPW (in CAD) for a specified period
–
Operating DPW (in CAD) for the previous year,
using the current foreign exchange rate
Operating DPW (in CAD) for the previous year,
using the current foreign exchange rate
Change in operating DPW in constant currency and Change in operating DPW are calculated using Operating DPW, a non- GAAP
financial measure.
• Operating DPW represents the total amount of premiums for new and renewal policies written during the reporting period,
normalized for the effect of multi-year policies, excluding industry pools, fronting and exited lines. This measure matches premiums
written to the year in which coverage is provided, whereas under IFRS, the full value of multi-year policies is recognized in the year
the policy is written. DPW is the most comparable GAAP measure to Operating DPW.
• We consider that this measure better reflects the operating performance of our core operations, and that it is the most useful
measure in terms of measuring growth and volume of business.
•
To calculate the Company’s performance relative to the Canadian industry for incentive compensation purposes, our DPW growth
is based on financial statements presentation.
Table 52 – Reconciliation of Operating DPW to DPW
DPW, as reported under IFRS
Remove: impact of industry pools and fronting
Remove: DPW from exited lines
Add: impact of the normalization for multi-year policies
Operating DPW, as reported in the MD&A
Operating DPW growth
Operating DPW growth (in constant currency)
108 INTACT FINANCIAL CORPORATION
Q4-2021
Q4-2020
2021
5,318
(260)
(70)
29
5,017
75%
75%
2,930
(41)
(17)
-
17,994
(605)
(161)
55
2,872
17,283
8%
8%
44%
45%
2020
12,143
(119)
(21)
36
12,039
9%
9%
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Operating NPW
• We note that several peers in the industry use Net premiums written (NPW) to report their top line performance. NPW reflect the
risk assumed and ceded on premiums written.
•
To enhance the analysis of our top line performance with peers in the industry, we provide Operating NPW, a non- GAAP financial
measure, in our Supplementary Financial Information available in the “Investors” section of our web site at www.intactfc.com.
Operating NPW is calculated as NPW (most directly comparable GAAP measure) normalized for the effect of multi-year policies,
excluding NPW from exited lines . See Table 53 below.
Table 53 – Reconciliation of Operating NPW to NPW, as reported under IFRS
NPW, as reported under IFRS
Remove: NPW from exited lines
Add: impact of normalization for multi-year policies
Operating NPW
Q4-2021
Q4-2020
2021
4,828
(63)
2
4,767
2,803
(21)
2
2,784
16,672
(156)
7
16,523
2020
11,616
(24)
42
11,634
Change in operating NEP and Change in operating NEP in constant currency
• Our consolidated operating NEP growth is measured based on Change in operating NEP, which is a non- GAAP ratio.
•
The segmented operating NEP growth of our non- canadian operating segments, as applicable, is measured based on Change
in operating NEP in constant currency, which is a non- GAAP ratio, that reflect the Operating NEP growth, as reported and
managed at the segment level (in the functional currency). We believe that this ratio enhances the analysis of our financial
performance with comparative periods as it excludes the impact of foreign currency fluctuations. When relevant, as we do for
Operating DPW, we disclose both ratios to highlight the impact of foreign currency fluctuations on our Operating NEP growth.
• Change in operating NEP and Change in operating NEP in constant currency are calculated using the same methodology as for
Change in operating DPW and Change in operating DPW (in constant currency) but using Operating NEP, a non-GAAP financial
measure.
• Operating NEP represents NEP (most directly comparable GAAP measure), excluding those from exited lines. We believe that
this measure better reflects the operating performance of our core operations. See Table 54 below.
Table 54 – Reconciliation of Operating NEP to NEP, as reported under IFRS
NEP, as reported under IFRS
Remove: NEP from exited lines
Operating NEP, as reported in the MD&A
Operating NEP growth
Q4-2021
Q4-2020
2021
2020
5,003
(72)
4,931
71%
2,899
(20)
2,879
7%
16,238
(195)
16,043
43%
11,241
(21)
11,220
10%
INTACT FINANCIAL CORPORATION 109
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
38.5 Underwriting profitability
Underwriting income (loss) and Operating combined ratio
• Our underwriting performance is measured based on Operating combined ratio, Claims ratio (including underlying current year
loss ratio, CAT loss ratio and PYD ratio) and Expense ratio (including commissions ratio, general expenses ratio and premium taxes
ratio), which are non- GAAP ratios (as defined below).
• Our underwriting performance is consistently managed and measured on an operating basis, in line with how we report NOI and
NOIPS. Non-operating items excluded from our underwriting performance comprised the underwriting results from exited lines, the
non- operating pension expense and the impact of MYA on underwriting results (see 38.1 – Operating performance for details). We
believe that this basis provides investors and financial analysts with a valuable measure of our ongoing underwriting performance
in terms of underwriting discipline and profitability.
• While operating combined ratio and components of underwriting performance are commonly used across the industry, they do not
have standardized meanings prescribed by IFRS (or GAAP) and may not be comparable to similar measures used by other
companies in our industry.
• Our underwriting ratios are calculated are calculated using the following Non-GAAP financial measures (marked with an asterix*).
An operating combined ratio below 100% indicates a profitable underwriting result. An operating combined ratio over 100% indicates
an unprofitable underwriting result.
Operating combined ratio
Claims ratio (see below) + Expense ratio (see below)
Claims ratio
Expense ratio
Operating net claims* (defined hereafter)
Operating net underwriting expenses* (defined hereafter)
Operating NEP* (Section 38.4)
Operating NEP* (Section 38.4)
Underlying current
year loss ratio
CAT loss ratio
Operating net claims excluding current
year CAT losses and PYD1 (Section 38.5)
Operating NEP* before the impact of
reinstatement premiums (Section 38.4)
Net current year CAT losses1 plus net
reinstatement premiums (Section 38.5)
Operating NEP* before the impact of
reinstatement premiums (Section 38.4)
Commissions ratio
Commissions1 (Section 38.5)
Operating NEP* (Section 38.4)
General expenses
ratio
General expenses1 (Section 38.5)
Operating NEP* (Section 38.4)
PYD ratio
PYD1 (Section 38.5)
Operating NEP* (Section 38.4)
Premium taxes
ratio
Premium taxes1 (Section 38.5)
Operating NEP* (Section 38.4)
1 These supplementary measures, which are defined hereafter, are disclosed on a quarterly basis in our MD&A and other financial reports to provide
more details on claims ratio and expense ratio.
• Underwriting income (loss)*, which is used in the calculation of the Operating combined ratio, is an operating measure calculated
as Operating NEP, less Operating net claims and Operating net underwriting expenses. The most directly comparable GAAP
measure is Underwriting income comprised of the following captions in the Consolidated statements of income: Net earned
premiums, Other underwriting revenues, Net claims incurred and Underwriting expenses. See Table 55 – Reconciliation of
Underwriting income to Underwriting income, as reported under IFRS
110 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
o Operating net claims are used in the calculation of the Claims ratio. Operating net claims represent Net claims incurred
(most comparable GAAP measure), excluding the impact of MYA on underwriting results, an adjustment for Non-operating
pension expense and Net claims from exited lines. See Table 56 – Reconciliation of Operating net claims to Net claims
incurred, as reported under IFRS.
To provide more insight into our underlying current year performance, the impact of CAT losses (which can be
volatile), and PYD, we further analyse Operating net claims as follows in our MD&A and other financial reports.
• Operating net claims excluding current year CAT losses and PYD are used in the calculation of
the Underlying current year loss ratio. CAT losses and PYD are not predictable and subject to volatility,
and as such, excluding them provides clearer insight into our analysis of underlying current year
performance.
• Net current year CAT losses are used in the calculation of the CAT loss ratio. A CAT loss represents
any one claim, or group of claims, equal to or greater than a predetermined CAT threshold, before
reinsurance, related to a single event for the current accident year. Effective July 1, 2021, our CAT
threshold is as follows by segment: P&C Canada: $10 million, P&C UK&I: £7.5 million and P&C US:
US$5 million. Reported CAT losses can either be weather-related or not weather-related and exclude
those from exited lines.
•
Prior year claims development (PYD) is used in the calculation of the PYD ratio. PYD represents the
change in total prior year claims liabilities during the period, net of reinsurance, excluding the PYD
related to exited lines. A decrease to claims liabilities is referred to as favourable prior year claims
development. An increase in claims liabilities is referred to as unfavourable prior year claims
development.
o Operating net underwriting expenses are comprised of commissions (including regular and variable commissions),
premium taxes and general expenses related to underwriting activities, net of other underwriting revenues. Operating net
underwriting expenses are used in the calculation of the Expense ratio (including commissions ratio, general expenses
ratio and premium taxes ratio).
Operating net underwriting expenses represent Underwriting expenses (most comparable GAAP measure), net
of other underwriting revenues and excluding an adjustment for non-operating pension expense and underwriting
expenses from exited lines.
Other underwriting revenues include fees collected from policyholders in connection with the costs incurred for
the Company’s yearly billing plans, as well as fees received for the administration of a portion of the Facility
Association and other policies.
See Table 57 – Reconciliation of Operating net underwriting expenses to Underwriting expenses, as reported under IFRS.
INTACT FINANCIAL CORPORATION 111
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Table 55 – Reconciliation of Underwriting income to Underwriting income, as calculated under IFRS
Net earned premiums, as reported under IFRS
Other underwriting revenues, as reported under IFRS
Net claims incurred, as reported under IFRS
Underwriting expenses, as reported under IFRS
Underwriting income (loss), as calculated under IFRS
Remove: impact of MYA on underwriting results (Table 43)
Remove: non-operating pension expense (Table 43)
Remove: underwriting loss (income) from exited lines (Table 43)
Underwriting income (loss), as reported in the MD&A
Operating NEP (Table 54)
Operating combined ratio
Q4-2021
Q4-2020
2021
5,003
79
(2,796)
(1,665)
621
(72)
16
35
600
4,931
87.8%
2,899
36
(1,663)
(932)
16,238
236
(8,967)
(5,611)
340
23
13
39
415
1,896
(226)
64
53
1,787
2,879
16,043
85.6%
88.8%
2020
11,241
135
(6,883)
(3,696)
797
315
53
62
1,227
11,220
89.1%
Table 56 – Reconciliation of Operating net claims to Net claims incurred, as reported under IFRS
Net claims incurred, as reported under IFRS
Remove: positive (negative) impact of MYA on underwriting results
Remove: adjustment for non-operating pension expense
Remove: net claims from exited lines
Net with: other underwriting revenues
Operating net claims, as reported in the MD&A
Remove: net current year CAT losses (Table 22)
Remove: favourable (unfavourable) PYD (Table 21)
Operating net claims excluding current year CAT losses and PYD
Operating NEP (Table 54)
Remove: reinstatement premiums ceded (recovered)
Operating NEP before reinstatement premiums
Underlying current year loss ratio 1
CAT loss ratio (including reinstatement premiums) 1 (Table 22)
(Favourable) unfavourable PYD ratio 2 (Table 21)
Claims ratio2
1 Calculated using Operating NEP before reinstatement premiums.
2 Calculated using Operating NEP.
Q4-2021
Q4-2020
2,796
72
(6)
(83)
(6)
2,773
(186)
160
2,747
4,931
-
4,931
55.7%
3.8%
(3.3)%
56.2%
1,664
(23)
(5)
(51)
-
1,585
(74)
28
1,539
2,879
-
2,879
53.5%
2.6%
(1.0)%
55.1%
Table 57 – Reconciliation of Operating net underwriting expenses to Underwriting expenses, as reported under IFRS
Underwriting expenses, as reported under IFRS
Net with: other underwriting revenues
Remove: adjustment for non-operating pension expense
Remove: underwriting expenses from exited lines
Operating net underwriting expenses, as reported in the MD&A
Commissions
General expenses
Premium taxes
Operating NEP (Table 54)
Commissions ratio
General expenses ratio
Premium taxes ratio
Expense ratio
112 INTACT FINANCIAL CORPORATION
Q4-2021
Q4-2020
1,665
(73)
(10)
(24)
1,558
829
591
138
4,931
16.8%
12.0%
2.8%
31.6%
932
(36)
(8)
(9)
879
461
330
88
2,879
16.0%
11.4%
3.1%
30.5%
2021
8,967
226
(24)
(172)
(24)
8,973
(676)
594
8,891
16,043
1
16,044
55.5%
4.2%
(3.8)%
55.9%
2021
5,611
(212)
(40)
(76)
5,283
2,885
1,914
484
16,043
18.0%
11.9%
3.0%
32.9%
2020
6,883
(315)
(20)
(71)
-
6,477
(359)
100
6,218
11,220
1
11,221
55.5%
3.2%
(0.9)%
57.8%
2020
3,696
(135)
(33)
(12)
3,516
1,842
1,289
385
11,220
16.4%
11.5%
3.4%
31.3%
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
38.6 Financial strength
Total capital margin and regulatory capital ratios
•
The capital strength of the group is measured by the Total capital margin.
• Each regulated insurance jurisdiction has its own supervisory capital ratio that is used to evaluate the ability of insurance companies
to meet all policyholder liabilities. See Section 28 – Capital management for more details.
Total capital
margin
as at the end of a
specific period
Total capital margin includes capital in excess
of the internal CALs1 for regulated insurance
entities in Canadian, US, UK and other
internationally regulated jurisdictions and the
funds held in non-regulated entities, less any
ancillary own funds committed by the
Company.
Regulatory capital
ratios
as at the end of a
specific period
Minimum capital test (as defined by OSFI and
the AMF in Canada), Risk-based capital (as
defined by the NAIC in the US) and Solvency
Capital Requirement (as defined by the PRA in
the UK&I)
1 The average CAL for all regulated Canadian insurance entities is 173% MCT. The CAL varies by legal Canadian entity. The CAL is 200% RBC for
regulated insurance entities in the US and 120% SCR for those in the UK.
Book value per share (BVPS) and BVPS (excluding AOCI)
•
•
The evolution of our book value is measured using BVPS (as defined below), which is calculated using GAAP measures. BVPS is
an important valuation measure used by investors and is consistently disclosed in our MD&A and other financial reports.
In line with a number of peers in the industry, we also disclose BVPS (excluding AOCI), a non- GAAP financial ratio, in our
Supplementary Financial Information available in the “Investors” section of our web site at www.intactfc.com. We believe that
excluding AOCI from the numerator is useful to investors because it eliminates volatility that arises mostly from changes in market
conditions, such as changes in interest and foreign exchange rates.
BVPS
as at the end of a
specific period
Common shareholders' equity
Number of common shares outstanding at the
same date
BVPS
(excluding AOCI)
as at the end of a
specific period
Common shareholders' equity (excluding AOCI)
Number of common shares outstanding at the
same date
Table 58 – Calculation of BVPS and BVPS (excluding AOCI)
As at December 31,
Equity attributable to shareholders, as reported under IFRS
Remove: Preferred shares, as reported under IFRS
Common shareholders’ equity
Remove: AOCI, as reported under IFRS
Common shareholders’ equity (excluding AOCI)
Number of common shares outstanding at the same date (in millions)
BVPS
BVPS (excluding AOCI)
2021
2020
15,674
(1,175)
14,499
(529)
13,970
9,583
(1,175)
8,408
(409)
7,999
176.082
143.018
82.34
79.34
58.79
55.93
INTACT FINANCIAL CORPORATION 113
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Adjusted average common shareholders’ equity
• Adjusted average common shareholders’ equity is a Non-GAAP financial measure used in the calculation of ROE and AROE.
It is the mean of the shareholders’ equity at the beginning and the end of the period, adjusted on a prorata basis (number of days)
for significant capital transactions. Equity attributable to shareholders and Preferred shares are determined in accordance with IFRS.
See Table 59 below.
• Adjusted average common shareholders’ equity, excluding AOCI is a Non-GAAP financial measure used in the calculation of
OROE. It is the mean of the shareholders’ equity, excluding AOCI at the beginning and the end of the period, adjusted on a prorata
basis (number of days) for significant capital transactions. Equity attributable to shareholders, Preferred shares and AOCI are
determined in accordance with IFRS. See Table 59 below.
• We believe that adjusting for common share issuance on prorata basis based on the number of days is a better reflection of our
average common shareholders’ equity base used to calculate ROE, AROE and OROE.
Table 59 – Adjusted average common shareholders’ equity and Adjusted average common shareholders’ equity (excluding AOCI)
As at December 31,
Ending common shareholders' equity (Table 58)
Remove: common shares issued during the year
Ending common shareholders' equity, excluding common shares issued during the year
Beginning common shareholders' equity
Average common shareholders’ equity, excluding common shares issued during the year
Weighted impact of June 1, 2021 common shares issuance
Adjusted average common shareholders’ equity
Ending common shareholders’ equity (excluding AOCI) (Table 58)
Remove: common shares issued during the year
Ending common shareholders' equity, excluding AOCI and common shares issued during the year
Beginning common shareholders' equity, excluding AOCI
Average common shareholders’ equity, excluding AOCI and common shares issued during the year
Weighted impact of June 1, 2021 common shares issuance
Adjusted average common shareholders’ equity, excluding AOCI
2021
14,499
(4,311)
10,188
8,408
9,298
2,528
11,826
13,970
(4,311)
9,659
7,999
8,829
2,528
11,357
2020
8,408
-
8,408
7,719
8,064
-
8,064
7,999
-
7,999
7,394
7,697
-
7,697
114 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Adjusted total capital and Adjusted debt-to-total capital ratio
Adjusted debt-to-capital ratio and Total leverage ratio, which are Non-GAAP ratios, are calculated using the following non-GAAP
financial measures (marked with an asterix*).
Adjusted debt-to-
capital ratio
as at the end of a
specific period
Debt outstanding (excluding hybrid debt)*
(see Table 60)
Adjusted total capital*
Total leverage ratio
as at the end of a
specific period
Debt outstanding and preferred shares
(including NCI)* (see Table 60)
Adjusted total capital*
• Debt outstanding (excluding hybrid debt) represents the debt outstanding (most comparable GAAP measure), excluding
hybrid subordinated notes. We classify hybrids with the preferred shares since they are convertible to preferred shares pari
passu to our existing preferred shares in case of default or bankruptcy.
• Adjusted total capital* represents the sum of Debt outstanding, Equity attributable to shareholders, Restricted Tier 1 notes
and preferred shares instruments held by subsidiaries, at the same date (see Table 60 below). The restricted Tier 1 notes and
preferred shares instruments held by subsidiaries are included in Equity attributable to NCI.
Table 60 – Reconciliation of Debt outstanding (excluding hybrid debt) and Adjusted total capital to Debt outstanding, Equity attributable to shareholders
and Equity attributable to NCI, as reported under IFRS
As at
Debt outstanding, as reported under IFRS
Remove: hybrid subordinated notes (see Note 20.4)
Debt outstanding (excluding hybrid debt)
Debt outstanding, as reported under IFRS
Equity attributable to shareholders, as reported under IFRS
Equity attributable to NCI, as reported under IFRS
Include: RSA Insurance Group plc, as reported under IFRS
Tier 1 notes (Note 22.1)
Preferred shares (Note 22.1)
Adjusted total capital
Debt outstanding (excluding hybrid debt)
Adjusted total capital
Adjusted debt-to-total capital ratio
Debt outstanding, as reported under IFRS
Preferred shares, as reported under IFRS
Equity attributable to NCI: RSA Insurance Group plc, as reported under
IFRS
Tier 1 notes (Note 22.1)
Preferred shares (Note 22.1)
Debt outstanding and preferred shares (including NCI)
Adjusted total capital (see above)
Total leverage ratio
Adjusted debt-to-total capital ratio
Preferred shares and hybrids
Dec. 31
2021
5,229
(247)
4,982
5,229
15,674
510
285
21,698
4,982
21,698
23.0%
5,229
1,175
510
285
7,199
21,698
33.2%
23.0%
10.2%
Sept. 30
2021
Dec. 31
2020
5,323
(247)
5,076
5,323
15,122
510
285
21,240
5,076
21,240
23.9%
5,323
1,175
510
285
7,293
21,240
34.3%
23.9%
10.4%
3,041
-
3,041
3,041
9,583
-
-
12,624
3,041
12,624
24.1%
3,041
1,175
-
-
4,216
12,624
33.4%
24.1%
9.3%
Refer to Note 20 – Debt outstanding and Note 22 – Non-controlling interests to the Consolidated financial statements for more details
on the composition of items presented in the above table.
INTACT FINANCIAL CORPORATION 115
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 39 - Accounting and disclosure matters
Reference to our Consolidated financial statements
Significant accounting
judgments, estimates and
assumptions
Adoption of new
accounting standards
Related-party
transactions
Standards issued
but not yet effective
Note 3
Note 4
Note 33
Note 36
39.1 Significant accounting judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRS requires management to use judgments, estimates and assumptions
that can have a significant impact on reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the
balance sheet date, as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ
significantly from these estimates.
The key estimates and assumptions that have a risk of causing a material adjustment to the carrying value of certain assets and
liabilities are as follows:
Reference to our Consolidated financial statements
COVID-19 pandemic
Business combinations
Valuation of claims liabilities
Impairment of goodwill and intangible assets
Note 3.2
Note 5.2
Note 11.3
Note 15.2
Impairment of financial assets
Measurement of income taxes
Valuation of DB obligation
Note 25.2
Note 27.3
Note 30.6
39.2 Related-party transactions
We enter into transactions with associates and joint ventures , including those classified as held for sale, in the normal course of
business. Most of these related-party transactions are with entities associated with our distribution channel. These transactions mostly
comprise of commissions for insurance policies, interest and principal payments on loans, as well as reinsurance agreements. These
transactions are measured at the amount of the consideration paid or received, as established and agreed by the related parties.
Management believes that such exchange amounts approximate fair value.
We also enter into transactions with key management personnel and pension plans. Our key management personnel are those that
have the authority and responsibility for planning, directing and controlling the activities of the Company. Following the RSA Acquisition,
the Company has refined its definition of key management personnel which now includes the entirety of the Executive Officers of the
Company, as well as the Board of Directors. Key management personnel can purchase our insurance products offered in the normal
course of business. The terms and conditions of such transactions are essentially the same as those available to our clients and
employees. Transactions with pension plans comprise the contributions paid to these plans.
39.3 Financial instruments
An important portion of our Consolidated balance sheets is composed of financial instruments.
Reference to our Consolidated financial statements
Summary of significant accounting
policies
Derivative financial instruments
Fair value measurement
Note 2
Note 8
Note 9
116 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
39.4 Foreign currency rates
Table 61 – Foreign currency rates
Foreign currency vs CAD
USD
GBP
EUR
Dec. 31, 2021
As at
Dec. 31, 2020
Q4-2021 Q4-2020
Average rates for the periods
2020
2021
1.26450
1.71017
1.43850
1.27210
1.73972
1.55412
1.26056
1.69913
1.44019
1.33228
n/a
n/a
1.25359
1.72431
1.48257
1.34104
1.72588
1.55619
39.5 Disclosure controls and procedures
We are committed to providing timely, accurate and balanced disclosure of all material information about the Company and to providing
fair and equal access to such information. Management is responsible for establishing and maintaining our disclosure controls and
procedures to ensure that information used internally and disclosed externally is complete and reliable. Due to the inherent limitations
in all control systems, an evaluation of controls can provide only reasonable, not absolute assurance, that all control issues and
instances of fraud or error, if any, within the Company have been detected. We continue to evolve and enhance our system of controls
and procedures.
Management, at the direction and under the supervision of the Chief Executive Officer and the Chief Financial Officer of the Company,
has evaluated the effectiveness of our disclosure controls and procedures. The evaluation was conducted in accordance with the
requirements of National Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”) of the
Canadian Securities Administrators. This evaluation confirmed, subject to the inherent limitations noted above, the effectiveness of the
design and operation of disclosure controls and procedures as at December 31, 2021. Management can therefore provide reasonable
assurance that material information relating to the Company and its subsidiaries is reported to it on a timely basis so that it may provide
investors with complete and reliable information.
39.6
Internal controls over financial reporting
Management has designed and is responsible for maintaining adequate internal control over financial reporting (“ICFR”) to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS.
Management has limited the scope of effectiveness of its disclosure controls and procedures and its ICFR to exclude the controls,
policies and procedures of RSA, which was acquired by IFC on June 1, 2021. RSA’s total assets and total liabilities represented
approximately 43% of total consolidated assets and 42% of total consolidated liabilities, respectively, as at December 31, 2021. Refer
to Note 5 – Business combination to the Consolidated financial statements for the impact on income before income taxes. Management
is committed to removing this limitation within the timeframe permitted by regulation.
Management has evaluated the design and operating effectiveness of its ICFR as defined in NI 52-109. The evaluation was based on
the criteria established in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). This evaluation was performed by the Chief Executive Officer and the Chief Financial Officer of the
Company with the assistance of other Company Management and staff to the extent deemed necessary. Based on this evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the ICFR were appropriately designed and operating effectively,
as at December 31, 2021.
In spite of its evaluation, Management does recognize that any controls and procedures, no matter how well designed and operated,
can only provide reasonable assurance and not absolute assurance of achieving the desired control objectives.
No significant changes were made to our ongoing ICFR during 2021 that have materially affected, or are reasonably likely to materially
affect, the Company’s ICFR.
INTACT FINANCIAL CORPORATION 117
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 40 - Shareholder information
40.1 Authorized share capital and outstanding share data
Our authorized share capital consists of an unlimited number of common shares and Class A shares.
Table 62 – Outstanding share data (number of shares)
As at February 8, 2022
Common shares1
Class A
Series 1 preferred shares
Series 3 preferred shares2
Series 5 preferred shares
Series 6 preferred shares
Series 7 preferred shares
Series 9 preferred shares
176,081,958
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
1 Included 33,063,824 common shares issued on June 1, 2021.
2 Reflected the exchange on a one-for-one basis of 828,676 Series 4 Preferred Shares to Series 3 Preferred Shares effective September 30, 2021.
Refer to our Annual Information Form for more detailed information on the rights of shareholders and to Note 21 – Common shares
and preferred shares to the Consolidated financial statements for additional information.
40.2 Quarterly dividends declared on common shares and preferred shares
Table 63 – Dividends declared per share
Common shares
Class A
Series 1 preferred shares
Series 3 preferred shares
Series 4 preferred shares (floating rate)
Series 5 preferred shares
Series 6 preferred shares
Series 7 preferred shares
Series 9 preferred shares
Q1-2022
1.00
0.21225
0.2160625
-
0.325
0.33125
0.30625
0.3375
Q4-2021
0.91
0.21225
0.2160625
-
0.325
0.33125
0.30625
0.3375
Q4-2020
0.83
0.21225
0.20825
0.1765225
0.325
0.33125
0.30625
0.3375
On February 8, 2022, the Board of Directors approved the quarterly dividend for Q1-2022. See Section 28.4 - Common shareholder
dividends
40.3 Expected release dates of our financial results
Q1-2022
May 10, 2022
Q2-2022
July 26, 2022
Q3-2022
Q4-2022
November 8, 2022
February 7, 2023
118 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 41 - Selected annual and quarterly information
41.1 Selected annual information
Table 64 – Selected annual information
Direct premiums written
Operating DPW
Total revenues1
Net income
Net income attributable to shareholders
EPS, basic and diluted (in dollars)
Cash dividends declared per share (in dollars)
Common shares
Class A
Series 1 Preferred Shares
Series 3 Preferred Shares
Series 4 Preferred Shares (floating rate)
Series 5 Preferred Shares
Series 6 Preferred Shares
Series 7 preferred shares
Series 9 preferred shares
Investments
Total assets
Total financial liabilities
Equity attributable to shareholders
2021
17,994
17,283
17,635
2,088
2,067
12.40
3.40
0.85
0.84
0.52
1.30
1.33
1.23
1.35
36,680
66,349
35,287
15,674
2020
12,143
12,039
12,303
1,082
1,082
7.20
3.32
0.85
0.83
0.89
1.30
1.33
1.23
1.17
20,630
35,119
17,917
9,583
2019
11,019
11,049
11,207
754
754
5.08
3.04
0.85
0.83
1.08
1.30
1.33
1.23
-
18,608
32,292
16,548
8,747
1 This measure has been adjusted to align with our Consolidated financial statements. Comparative figures are reported on the same basis.
41.2 Selected quarterly information
Table 65 – Selected quarterly information1
Q4
5,318
5,017
5,270
4,931
186
(160)
600
87.8%
220
77
678
701
Q3
5,719
5,447
5,189
4,871
365
(148)
426
91.3%
191
105
519
300
Q2
4,414
4,297
3,748
3,482
73
(136)
464
86.7%
154
118
515
573
2021
Q1
2,543
2,522
2,997
2,759
52
(150)
297
89.3%
141
62
357
514
Q4
2,928
2,872
3,120
2,879
74
(28)
415
85.6%
143
72
467
378
Q3
3,269
3,264
3,092
2,863
24
(17)
369
87.1%
143
81
411
334
Q2
3,389
3,382
2,939
2,712
124
(3)
284
89.5%
141
78
350
263
2020
Q1
2,557
2,521
2,996
2,766
137
(52)
159
94.3%
150
44
243
107
692
295
566
514
378
334
263
107
Direct premiums written
Operating DPW
Total revenues1
Operating NEP
Current year CAT losses
Favourable PYD
Underwriting income
Operating combined ratio 2
Net investment income
Distribution income
NOI
Net income
Net income attributable to
shareholders
Per share measures, basic and
diluted (in dollars)
NOIPS
EPS
2.87
1.60
1 This measure has been adjusted to align with our Consolidated financial statements. Comparative figures are reported on the same basis.
2 See Section 17 – Seasonality of our P&C insurance business.
2.35
1.74
3.26
3.59
3.78
3.85
3.18
2.55
2.40
3.51
2.78
2.25
1.61
0.66
INTACT FINANCIAL CORPORATION 119
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
Section 42 - Glossary and definitions
This icon represents data relevant to environmental, social and governance (ESG) disclosure, and its impact on our results where
applicable.
42.1 Glossary of abbreviations
ABI
AEPS
AFS
AMF
AOCI
AROE
BC
BVPS
CAD
Description
Association of British Insurers
Adjusted EPS
Available for sale
MCT
MD&A
MGA
Description
Minimum capital test (Canada)
Management’s Discussion and Analysis
Managing general agent
Autorité des marchés financiers
Moody’s Moody’s Investor Service Inc.
Accumulated OCI
Adjusted ROE
British Columbia
Book value per share
Canadian Dollar
MYA
NAIC
NCI
NEP
NOI
Market yield adjustment
National Association of Insurance Commissioners
Non-controlling interests
Net earned premiums
Net operating income
CAGR
Compound annual growth rate
NOIPS
NOI per share
Company action level
OCI
Other comprehensive income
DKK (kr.)
Danish krone, Denmark’s official currency
Canada
Catastrophe
Dominion Bond Rating Services
Diversity and Inclusion
Directors and Officers
Direct premiums written
Errors and Omissions
OROE
Operating ROE
OSFI
P&C
P&E
PRA
PTOI
PYD
RBC
Office of the Superintendent of Financial Institutions
Property & Casualty
Property and equipment
Prudential Regulatory Authority
Pre-tax operating income
Prior year claims development
Risk-based capital (US)
CAL
CAN
CAT
DBRS
D&I
D&O
DPW
E&O
EPS
Earnings per share to common shareholders Repos
Repurchase agreements
Euro (€)
Currency of the European Union
FCA
Fitch
F/S
Financial Conduct Authority
Fitch Ratings Inc.
Financial Statements
FVTPL
Fair value through profit and loss
GBP (£)
British pound sterling, UK’s official currency
ROE
SCR
SME
S&P
TSX
UK
Return on equity
Solvency Capital Requirement (Europe)
Small and medium-sized enterprise
Standard & Poor’s
Toronto Stock Exchange
United Kingdom
IFRS
KPI
M&A
International Financial Reporting Standards
UK&I
United Kingdom and International
Key performance indicator
Mergers and acquisitions
US
USD
United States
US Dollar
120 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2021
(in millions of Canadian dollars, except as otherwise noted)
42.2 Definitions of performance measures and key terms used in our MD&A
• Unless otherwise noted, operating DPW refer to DPW normalized for the effect of multi-year policies, excluding industry pools,
fronting and exited lines (referred to as “operating DPW” in this MD&A).
• Unless otherwise noted, all underwriting results and related ratios exclude the MYA, as well as the results from exited lines. The
expense and general expense ratios are presented herein net of other underwriting revenues.
• Catastrophe claims are any one claim, or group of claims, equal to or greater than a predetermined CAT threshold, before
reinsurance, related to a single event. Reported CAT losses can either be weather-related or not weather-related (‘other than
weather-related’) and exclude those from exited lines. Effective July 1, 2021, our CAT threshold is as follows; P&C Canada:
$10 million, P&C UK&I: £7.5 million and P&C U.S: US$5 million.
• A large loss is defined as a single claim, which is considered significant but that is smaller than the CAT threshold.
• A non- catastrophe weather event is a group of claims, which is considered significant but that is smaller than the CAT threshold,
related to a single weather event.
• Non-CAT weather-related losses represent claims which we attribute to weather conditions. We estimate the impact of weather on
our results by matching increases in claims frequency with specific weather events, and also by considering the underlying cause
of claims.
INTACT FINANCIAL CORPORATION 121
Intact Financial Corporation
Consolidated financial statements
For the year ended December 31, 2021
Management’s responsibility for financial reporting
Management is responsible for the preparation and presentation of the Consolidated financial statements of Intact Financial
Corporation and its subsidiaries, collectively known as “the Company”. This responsibility includes selecting appropriate accounting
policies and making estimates and informed judgments based on the anticipated impact of current transactions, events and trends,
consistent with International Financial Reporting Standards.
In meeting its responsibility for the reliability of consolidated financial statements, management maintains and relies on a
comprehensive system of internal control comprising organizational procedural controls and internal controls over financial
reporting. The Company’s system of internal control includes the communication of policies and of the Company’s Code of Conduct,
proper segregation of duties, delegation of authority for transactions, personal accountability, selection and training of personnel,
safeguarding of assets and maintenance of records. The system of internal controls is reviewed and evaluated on an ongoing basis
by management and the Company’s Group Financial Control function.
The Company’s Board of Directors, acting through the Audit Committee, which is composed entirely of independent Directors who
are neither officers nor employees of the Company, oversees management’s responsibility for the design and operation of effective
financial reporting and internal controls, as well as the preparation and presentation of financial information.
The Audit Committee conducts such review and inquiry of management and the internal and external auditors as it deems
necessary to establish that the Company employs an appropriate system of internal control, adheres to legislative and regulatory
requirements and applies the Company’s Code of Conduct. The internal and external auditors, the Group Financial Control function,
and the Chief Actuarial Officer, have full and unrestricted access to the Audit Committee, with and without the presence of
management.
The Regional Chief Actuaries, who are members of management, are appointed by the relevant entity Board of the Company. The
Regional Chief Actuaries are responsible for discharging the various actuarial responsibilities and conduct a valuation of claims
liabilities, in accordance with generally accepted actuarial standards, reporting results to management and the Audit Committee.
The Company’s external auditors, Ernst & Young LLP, are appointed by the shareholders to conduct an independent audit of the
Consolidated financial statements of the Company and meet separately with both management and the Audit Committee to discuss
the results of their audit, financial reporting and related matters. The Independent Auditor’s Report to shareholders appears on the
following pages.
February 8, 2022
Charles Brindamour
Chief Executive Officer
Louis Marcotte
Executive Vice President and
Chief Financial Officer
Independent auditor’s report
To the shareholders of
Intact Financial Corporation
Opinion
We have audited the consolidated financial statements of Intact Financial Corporation and its subsidiaries [the
“Group”], which comprise the consolidated balance sheets as at December 31, 2021 and 2020, and the
consolidated statements of income, consolidated statements of comprehensive income, consolidated statements
of changes in shareholders’ equity and consolidated statements of cash flows for the years then ended, and notes
to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at December 31, 2021 and 2020, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards [“IFRSs”].
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report. We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of
the financial statements of the current period. These matters were addressed in the context of the audit of the
financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided
in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the
performance of procedures designed to respond to our assessment of the risks of material misstatement of the
financial statements. The results of our audit procedures, including the procedures performed to address the
matters below, provide the basis for our audit opinion on the accompanying financial statements.
Valuation of claims liabilities
The Group describes its significant accounting judgments, estimates and assumptions in relation to the valuation
of claims liabilities in Note 3 and Note 11 to the consolidated financial statements. As at December 31, 2021, the
Group has recognized $25 billion in claims liabilities on its consolidated balance sheet, which represent 51% of its
total liabilities.
The principal consideration for our determination that claims liabilities are a key audit matter is that the estimate of
the provision involves the application of models, methodologies, and assumptions that require significant auditor
attention. Claims liabilities are determined in accordance with generally accepted actuarial practices. The main
assumption underlying these estimates is that the Group’s past claims development experience can be used to
project future claims development. As such, actuarial claims projection techniques extrapolate the development of
paid and incurred losses, frequency and severity of claims based on the observed development of earlier years
and expected loss ratios. Additional qualitative judgment is used to assess the extent to which past trends may not
apply in the future to arrive at the estimated ultimate cost of claims that present the likely outcome from the range
of possible outcomes, considering the uncertainties involved.
A member firm of Ernst & Young Global Limited
– 2 –
In 2021, the consequences of COVID-19 and the lack of historical data for similar circumstances impacted
management’s determination of claims liabilities and required the application of heightened judgment. As a result,
claims liabilities have a higher than usual degree of estimation uncertainty and inputs used are inherently subject
to change, which may materially change the estimate of claims liabilities in future periods.
Our audit procedures related to the determination of claims liabilities were conducted with the support of our
actuarial specialists and included the following, among other procedures:
• Evaluated the objectivity, independence and expertise of the actuarial valuator appointed by management;
• Tested the design of selected key controls of the actuarial portion of the claims liabilities process. For the
business not acquired in the RSA Insurance Group plc (“RSA”) acquisition, we also tested the design and
operating effectiveness of selected key controls, including controls over the integrity of data flows through the
administration systems, for the claims handling portion of the claims liabilities process;
• Obtained an understanding of the Group’s actuarial methodologies and assessing whether they were
determined in accordance with generally accepted actuarial practices; performed an independent valuation of
claims liabilities for a sample of lines of business that reflected our expectations based on the Group’s historical
experience, current trends, and benchmarking to our industry knowledge including information relating to
forthcoming legislation and the consequences of COVID-19 that could affect claims settlement in terms of
speed or amount. The high degree of uncertainty due to COVID-19 led to a high degree of auditor judgment in
establishing our estimates;
• Performed data integrity testing of incurred claims, paid claims, and earned premiums used in the valuation of
claims liabilities; and
• Assessed the adequacy of the disclosures pertaining to the claims liabilities provided in notes to the
consolidated financial statements.
Accounting for business combination – Acquisition of RSA
The Group describes its significant accounting judgments, estimates and assumptions in relation to accounting for
business combinations in Note 5 to the consolidated financial statements. On June 1, 2021, the Group, together
with the Scandinavian P&C leader Tryg A/S, acquired the entire issued share capital of RSA, a multinational
insurance group, for a total purchase consideration of $12.3 billion, resulting in the recognition of a bargain
purchase gain of $204 million.
The acquisition accounting is considered a key audit matter because of the quantitative materiality of the acquisition
and the significant management judgments and estimates made on the provisional purchase price allocations. The
key judgments relate to the allocation of the purchase price to the assets and liabilities identified, more specifically
to the valuation of identified intangibles, assets held for sale, pension obligation and claims liabilities.
Our audit procedures related to the preliminary purchase price allocations were conducted with the support of our
actuarial and valuation specialists and included the following, among other procedures:
• Reviewed the key legal agreements to obtain an understanding of the transaction and the key terms;
• Assessed the adequacy of the disclosures pertaining to the acquisition provided in notes to the consolidated
financial statements;
• For the intangible assets and assets held for sale, assessed the appropriateness of management’s valuation
methodologies, key assumptions, and inputs used in measuring fair value. The key assumptions were the
discount rates and the cash flow projections, and, for the case of the intangible assets, the useful lives assigned
to the acquired assets;
• For the pension obligation, assessed the appropriateness of the actuarial methodologies and the rationale for
the actuarial assumptions applied; and
• For the claim liabilities, performed an independent valuation for a sample of lines of business that reflected our
expectations based on historical experience, current trends, and benchmarking to our industry knowledge
including information relating to forthcoming legislation and the consequences of COVID-19 that could affect
claims settlement speed or amount.
A member firm of Ernst & Young Global Limited
– 3 –
Other information
Management is responsible for the other information. The other information comprises:
• Management’s discussion and analysis; and
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information, and in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the
work we will perform on this other information, we conclude there is a material misstatement of other information,
we are required to report that fact to those charged with governance.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRSs, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A member firm of Ernst & Young Global Limited
– 4 –
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control;
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management;
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern;
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation; and
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Doru Pantea.
Toronto, Canada
February 8, 2022
A member firm of Ernst & Young Global Limited This page intentionally left blank
INTACT FINANCIAL CORPORATION
Consolidated financial statements
For the year ended December 31, 2021
Table of contents
Consolidated balance sheets ............................................................................................................................. 3
Consolidated statements of income ................................................................................................................... 4
Consolidated statements of comprehensive income .......................................................................................... 5
Consolidated statements of changes in equity ................................................................................................... 6
Consolidated statements of cash flows .............................................................................................................. 7
Notes to the Consolidated financial statements
Note 1 – Status of the Company ........................................................................................................................ 8
Note 2 – Summary of significant accounting policies ......................................................................................... 8
Note 3 – Significant accounting judgments, estimates and assumptions ......................................................... 23
Note 4 – Adoption of new accounting standards .............................................................................................. 25
Note 5 – Business combination ........................................................................................................................ 26
Note 6 – Investments ....................................................................................................................................... 29
Note 7 – Financial liabilities related to investments .......................................................................................... 31
Note 8 – Derivative financial instruments ......................................................................................................... 32
Note 9 – Fair value measurement .................................................................................................................... 35
Note 10 – Financial risk .................................................................................................................................... 36
Note 11 – Claims liabilities ............................................................................................................................... 44
Note 12 – Unearned premiums ........................................................................................................................ 47
Note 13 – Insurance risk .................................................................................................................................. 47
Note 14 – Reinsurance ..................................................................................................................................... 50
Note 15 – Goodwill and intangible assets ........................................................................................................ 53
Note 16 – Investments in associates and joint ventures ................................................................................... 55
Note 17 – Property and equipment ................................................................................................................... 55
Note 18 – Other assets and other liabilities ...................................................................................................... 56
Note 19 – Asset held for sale ........................................................................................................................... 57
Note 20 – Debt outstanding .............................................................................................................................. 58
Note 21 – Common shares and preferred shares ............................................................................................ 61
Note 22 – Non-controlling interests .................................................................................................................. 64
Note 23 – Capital management ........................................................................................................................ 65
Note 24 – Net investment income .................................................................................................................... 66
Note 25 – Net gains (losses) ............................................................................................................................ 67
Note 26 – Acquisition, integration and restructuring costs ................................................................................ 68
Note 27 – Income taxes ................................................................................................................................... 68
Note 28 – Earnings per share........................................................................................................................... 71
Note 29 – Share-based payments .................................................................................................................... 71
Note 30 – Employee future benefits ................................................................................................................. 74
Note 31 – Segment information ........................................................................................................................ 81
Note 32 – Additional information on the Consolidated statements of cash flows.............................................. 84
Note 33 – Related-party transactions ............................................................................................................... 85
Note 34 – Commitments and contingencies ..................................................................................................... 86
Note 35 – Disclosures on rate regulation ......................................................................................................... 87
Note 36 – Standards issued but not yet effective ............................................................................................. 87
2 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated balance sheets
(in millions of Canadian dollars, except as otherwise noted)
As at December 31,
Assets
Investments
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Total investments
Premiums receivable
Reinsurance assets
Income taxes receivable
Deferred tax assets
Deferred acquisition costs
Investments in associates and joint ventures
Property and equipment
Intangible assets
Goodwill
Other assets
Asset held for sale
Total assets
Liabilities
Claims liabilities
Unearned premiums
Financial liabilities related to investments
Income taxes payable
Deferred tax liabilities
Debt outstanding
Other liabilities
Total liabilities
Equity
Common shares
Preferred shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Available-for-sale securities
Translation of foreign operations, net of hedges
Other
Equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Note
6
$
$
$
14
27
16
17
15
15
18
19
11
12
7
27
20
18
21
21
22
2021
2020
2,276 $
25,307
1,847
5,686
634
930
36,680
7,838
5,616
198
584
2,024
760
774
4,636
3,066
3,331
842
66,349 $
25,116 $
11,703
265
131
698
5,229
6,424
49,566
7,576
1,175
211
6,183
513
1
15
15,674
1,109
16,783
917
14,098
1,552
3,779
-
284
20,630
3,822
1,533
7
179
1,089
811
520
2,514
2,813
1,201
-
35,119
12,780
6,256
89
149
279
3,041
2,942
25,536
3,265
1,175
187
4,547
412
(2)
(1)
9,583
-
9,583
Total liabilities and equity
$
66,349 $
35,119
See accompanying notes to the Consolidated financial statements.
On behalf of the Board:
Charles Brindamour
Director
Jane E. Kinney
Director
INTACT FINANCIAL CORPORATION 3
Note
$
24
11
24
25
5
16
26
27
22
28
28
21
$
2021
17,994
(1,322)
16,672
(434)
16,238
236
740
421
17,635
(8,967)
(5,611)
(34)
249
204
87
(153)
(429)
(413)
2,568
(480)
$
2,088
$
2,067
21
2,088
162.4
12.40
3.40
$
$
$
$
$
$
2020
12,143
(527)
11,616
(375)
11,241
135
600
327
12,303
(6,883)
(3,696)
(23)
182
-
52
(115)
(115)
(346)
1,359
(277)
1,082
1,082
-
1,082
143.0
7.20
3.32
INTACT FINANCIAL CORPORATION
Consolidated statements of income
(in millions of Canadian dollars, except as otherwise noted)
For the years ended December 31,
Direct premiums written
Premiums ceded
Net premiums written
Changes in unearned premiums
Net earned premiums
Other underwriting revenues
Investment income
Other revenues
Total revenues
Net claims incurred
Underwriting expenses
Investment expenses
Net gains (losses)
Gain on bargain purchase
Share of profit from investments in associates and joint ventures
Finance costs
Acquisition, integration and restructuring costs
Other expenses
Income before income taxes
Income tax benefit (expense)
Net income
Net income attributable to:
Shareholders
Non-controlling interests
Weighted-average number of common shares outstanding (in millions)
Earnings per common share, basic and diluted (in dollars)
Dividends paid per common share (in dollars)
See accompanying notes to the Consolidated financial statements.
4 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated statements of comprehensive income
(in millions of Canadian dollars, except as otherwise noted)
For the years ended December 31,
Note
2021
2020
Net income
Other comprehensive income (loss)
Available-for-sale securities:
net changes in unrealized gains (losses)
income tax benefit (expense)
reclassification of net losses (gains)
income tax (benefit) expense
Cash flow hedges:
net changes in unrealized gains (losses)
reclassification of net losses (gains)
Foreign exchange gains (losses) on:
translation of foreign operations
net investment hedges
income tax benefit (expense)
Other, net of tax
Items that may be reclassified subsequently to net income
Actuarial gains (losses) on employee future benefits, net of other surplus remeasurement 30
income tax benefit (expense)
Items that will not be reclassified subsequently to net income
Other comprehensive income (loss)
Total comprehensive income
Total comprehensive income attributable to:
Shareholders
Non-controlling interests
See accompanying notes to the Consolidated financial statements.
$
2,088 $
1,082
445
(154)
(289)
99
101
(26)
32
6
(11)
23
(1)
11
16
134
352
(80)
272
406
204
(41)
(27)
1
137
-
-
-
(105)
55
2
(48)
(5)
84
59
(15)
44
128
$
2,494 $
1,210
2,459
35
2,494 $
1,210
-
1,210
$
INTACT FINANCIAL CORPORATION 5
INTACT FINANCIAL CORPORATION
Consolidated statements of changes in equity
(in millions of Canadian dollars, except as otherwise noted)
Equity attributable to shareholders
Common
shares
Preferred
shares
Contributed
surplus
Retained
earnings
Note
Accumulated
other compre-
hensive
income (loss)
Equity
attributable
to non-
controlling
interests
Total
Equity
Balance as at January 1, 2021
$
3,265 $
1,175 $
187 $
4,547 $
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
-
-
-
Common shares issued
Dividends declared on:
common shares
preferred shares
Share-based payments
Non-controlling interests:
dividends
business combination
Other
21
4,311
-
-
-
-
-
-
22
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24
-
-
-
2,067
272
2,339
-
(626)
(53)
(22)
-
-
(2)
409 $
-
120
120
-
-
-
-
-
-
-
- $ 9,583
21
14
35
-
-
-
-
2,088
406
2,494
4,311
(626)
(53)
2
(27)
1,101
-
(27)
1,101
(2)
Balance as at December 31, 2021
$
7,576 $
1,175 $
211 $
6,183 $
529 $
1,109 $ 16,783
Balance as at January 1, 2020
$
3,265 $
1,028 $
170 $
3,959 $
325 $
- $ 8,747
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Preferred shares issued
Dividends declared on:
common shares
preferred shares
Share-based payments
-
-
-
-
-
-
-
-
-
-
147
-
-
-
-
-
-
-
-
-
17
1,082
44
1,126
-
(475)
(52)
(11)
-
84
84
-
-
-
-
-
-
-
-
-
-
-
1,082
128
1,210
147
(475)
(52)
6
Balance as at December 31, 2020
$
3,265 $
1,175 $
187 $
4,547 $
409 $
- $ 9,583
See accompanying notes to the Consolidated financial statements.
6 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated statements of cash flows
(in millions of Canadian dollars, except as otherwise noted)
For the years ended December 31,
Operating activities
Income before income taxes
Income taxes received (paid), net
Adjustments for non-cash items
Changes in other operating assets and liabilities
Net cash flows provided by (used in) operating activities
Investing activities
Business combination, net of cash acquired
Proceeds from the disposal of certain RSA assets
Proceeds from sale of investments
Purchases of investments
Purchases of brokerages and other equity investments, net
Purchases of intangibles and property and equipment, net
Net cash flows provided by (used in) investing activities
Financing activities
Payment of lease liabilities
Proceeds from (repurchase of) securities sold under repurchase agreements
Payment of contingent consideration related to a business combination
Proceeds from issuance of debt, net
Repayment of debt
Borrowing (repayment) on the credit facility and commercial paper, net
Proceeds from issuance of common shares and preferred shares, net
Repurchase of common shares for share-based payments
Payment of dividends on common shares and preferred shares
Payment of dividends to non-controlling interests
Net cash flows provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Exchange rate differences on cash and cash equivalents
Cash and cash equivalents, end of year
Composition of cash and cash equivalents
Cash
Cash equivalents
Cash and cash equivalents, end of year
Other relevant cash flow disclosures – operating activities
Interest paid
Interest received
Dividends received
See accompanying notes to the Consolidated financial statements.
Note
2021
32
32
5
5
20
20
20
21
29
21
22
$
$
2,568
(783)
191
1,153
3,129
(11,076)
7,209
16,442
(18,118)
(102)
(327)
(5,972)
(97)
-
(15)
1,815
(1,429)
439
4,263
(64)
(679)
(27)
4,206
1,363
917
(4)
$
2,276
$
901
1,375
2,276
191
445
323
2020
1,359
(348)
255
1,086
2,352
-
-
11,170
(13,262)
(187)
(163)
(2,442)
(59)
(20)
(94)
894
(47)
(165)
146
(49)
(527)
-
79
(11)
936
(8)
917
844
73
917
115
353
268
INTACT FINANCIAL CORPORATION 7
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 1 – Status of the Company
Intact Financial Corporation (the “Company”), incorporated under the Canada Business Corporations Act, is domiciled in Canada and
its shares are publicly traded on the Toronto Stock Exchange (TSX: IFC). The Company has investments in wholly owned subsidiaries
which operate principally in the Canadian, UK and US P&C insurance market. The Company, through its operating subsidiaries,
principally underwrites automobile, home, as well as commercial P&C contracts to individuals and businesses. Effective February 18,
2020, OneBeacon Insurance Group Holdings, Ltd. was renamed Intact Insurance Group USA Holdings Inc. (referred to as “Intact U.S.
(OneBeacon)”). On June 1, 2021, the Company completed the acquisition of RSA Insurance Group plc (“RSA”), referred to as the
"RSA acquisition". See Note 5.1 – Business combination for more details.
These Consolidated financial statements include the accounts of the Company and its subsidiaries. The Company’s significant
operating subsidiaries are presented in Note 31 – Segment information.
The registered office of the Company is 700 University Avenue, Toronto, Canada.
Note 2 – Summary of significant accounting policies
Glossary of abbreviations .................................................................................................................................................................. 9
2.1 Basis of presentation ................................................................................................................................................................ 9
2.2 Basis of consolidation ............................................................................................................................................................... 9
2.3 Insurance contracts ................................................................................................................................................................. 10
a) Revenue recognition and premiums receivable .................................................................................................................... 10
b) Claims liabilities .................................................................................................................................................................... 11
c) Reinsurance assets ............................................................................................................................................................... 11
d) Deferred acquisition costs ..................................................................................................................................................... 11
e) Liability adequacy test ........................................................................................................................................................... 11
2.4 Financial instruments ............................................................................................................................................................. 12
a) Classification and measurement of financial assets and financial liabilities .......................................................................... 12
b) Fair value measurement ....................................................................................................................................................... 13
c) Derivative financial instruments and hedging ........................................................................................................................ 14
d) Recognition of financial assets and financial liabilities .......................................................................................................... 15
e) Offsetting of financial assets and financial liabilities ............................................................................................................. 16
f) Revenue and expense recognition ........................................................................................................................................ 16
g) Impairment of financial assets other than those classified or designated as FVTPL ............................................................ 16
2.5 Business combination ............................................................................................................................................................. 17
2.6 Goodwill and intangible assets .............................................................................................................................................. 18
a) Goodwill................................................................................................................................................................................. 18
b) Intangible assets ................................................................................................................................................................... 18
2.7 Foreign currency translation .................................................................................................................................................. 18
Investments in associates and joint ventures....................................................................................................................... 19
2.8
2.9 Property and equipment ......................................................................................................................................................... 19
2.10 Investment property and rental income ................................................................................................................................. 20
2.11 Leases ....................................................................................................................................................................................... 20
2.12 Asset held for sale ................................................................................................................................................................... 20
2.13 Income taxes ............................................................................................................................................................................ 20
a) Income tax expense (benefit) ............................................................................................................................................... 20
b) Recognition and offsetting of current tax assets and liabilities .............................................................................................. 21
2.14 Share-based payments ........................................................................................................................................................... 21
a) Long-term incentive plan ....................................................................................................................................................... 21
b) Employee share purchase plan ............................................................................................................................................. 21
c) Deferred share unit plan ........................................................................................................................................................ 22
d) Employee stock option plan................................................................................................................................................... 22
2.15 Employee future benefits – pension ...................................................................................................................................... 22
2.16 Restructuring provision .......................................................................................................................................................... 23
2.17 Current vs non-current ............................................................................................................................................................ 23
8 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Glossary of abbreviations
ABS
AFS
AMF
AOCI
ARR
Asset-backed securities
Available-for-sale
Autorité des marchés financiers
Accumulated other comprehensive income
Alternative reference rate
ATRA
Alberta Tax and Revenue Administration
CAD
CALs
CGU
CRA
DB
Canadian Dollar
Company action levels
Cash generating unit
Canada Revenue Agency
Defined benefits
DKK (kr.) Danish krone, Denmark’s official currency
DPW
DSU
EPS
ESOP
ESPP
Direct premiums written
Deferred share unit
Earnings per share to common shareholders
Employee stock option plan
Employee share purchase plan
EUR (€) Currency of the European Union
FA
Facility Association
FVTOCI
Fair value through other comprehensive income
FVTPL
Fair value through profit and loss
GBP (£)
British pound sterling, UK’s official currency
IFRS
JV
LAE
LTIP
MBS
MCT
International Financial Reporting Standards
Joint ventures
Loss adjustment expenses
Long-term incentive plan
Mortgage-backed securities
Minimum capital test (Canada)
MD&A
Management’s Discussion and Analysis
MYA
NCI
NEP
NOI
OCI
OSFI
P&C
PSU
PTOI
RBC
ROE
RQ
RSU
SCR
UK
Market-yield adjustment
Non-controlling interests
Net earned premiums
Net operating income
Other comprehensive income
Office of the Superintendent of Financial Institutions
Property and casualty
Performance stock units
Pre-tax operating income
Risk-based capital (US)
Return on equity
Revenu Quebec
Restricted stock units
Solvency Capital Requirement (Europe)
United Kingdom
IAS
IASB
IBNR
IBOR
International Accounting Standard
UK&I
United Kingdom and International
International Accounting Standards Board
US
United States
Insurance claims incurred but not reported by policyholders USD
US Dollar
Interbank offered rate
2.1 Basis of presentation
These Consolidated financial statements and the accompanying notes are prepared in accordance with IFRS, as issued by the IASB.
They were authorized for issue in accordance with a resolution of the Board of Directors on February 8, 2022.
The key accounting policies applied in the preparation of these Consolidated financial statements are described below. These policies
have been applied consistently to all periods presented, except for the amendments to existing standards as described in Note 4 –
Adoption of new accounting standards and accounting policies newly applied in relation to the RSA acquisition as described below.
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.
2.2 Basis of consolidation
These Consolidated financial statements include the accounts of the Company and its subsidiaries. Table 2.1 presents the basis of
consolidation.
In some cases, voting rights in themselves are not sufficient to assess power or significant influence over the relevant activities of the
investee or the sharing of control in a joint arrangement. In such cases, judgment is applied through the analysis of management
agreements, the effectiveness of voting rights, the significance of the benefits to which the Company is exposed and the degree to
which the Company can use its power to affect its returns from investees.
Acquisitions or disposals of equity interests in a subsidiary that do not result in the Company obtaining or losing control are treated as
equity transactions and reported as acquisitions or disposals of NCI in the Consolidated statements of changes in equity. All balances,
transactions, income and expenses and profits and losses resulting from intercompany transactions and dividends are eliminated on
consolidation.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 2.1 – Basis of consolidation
Investment category
Subsidiaries
Entities over which the Company:
1. has the power over the relevant activities of the investee;
2. is exposed, or has rights to variable returns from its
involvement with the investee; and
3. has the ability to affect those returns through its power over
the investee.
Associates
Entities over which the Company:
1. has the power to participate in the decisions over the
relevant activities of the investee, but
2. does not have control.
Joint ventures
Joint arrangements whereby the parties have:
1. joint control of the arrangements, requiring unanimous
consent of the parties sharing control for strategic and
operating decision making; and
2. rights to the net assets of the arrangements.
2.3
Insurance contracts
Shareholding
Accounting policies
Generally, more
than 50% of voting
rights
All subsidiaries are fully consolidated
from the date control is transferred to the
Company.
They are deconsolidated from the date
control ceases and any gain or loss is
recognized in Net gains (losses).
Generally, between
20% to 50% of
voting rights
Equity method
Note 2.8 for details
Equity method
Note 2.8 for details
Generally, an
equal percentage
of voting rights
from each party to
the joint
arrangement
Insurance contracts are those contracts that transfer significant insurance risk at the inception of the contract. Insurance risk is
transferred when the Company agrees to compensate a policyholder on the occurrence of an adverse specified uncertain future event.
As a general guideline, the Company determines whether it has significant insurance risks, by comparing the benefits that could
become payable under various possible scenarios relative to the premium received from the policyholder for insuring the risk.
In relation to the RSA acquisition, accounting policy and presentation were aligned on closing of the acquisition for all jurisdictions
where the Company had previously adopted accounting policies. For new jurisdictions, certain local accounting practices were
maintained as permitted by IFRS 4 - Insurance contracts (“IFRS 4”).
a)
Revenue recognition and premiums receivable
Premiums written are reported net of cancellations, promotional returns and sales taxes. Premiums written are recognized on the date
coverage begins. Premiums written are deferred as Unearned premiums and recognized as NEP (net of reinsurance), on a pro rata
basis over the terms of the underlying policies, which is usually 12 months.
Premium modifications are reported against premiums written with a corresponding change in Premiums receivable and are
recognized on the contract modification date. Premium modifications are deferred as part of Unearned premiums and are recognized
against NEP on a pro rata basis over the remaining term of the underlying policy or immediately if they clearly relate to past services
to match the change in insurance risk.
Premiums receivable consist of the premiums due for the remaining months of the contracts.
Other underwriting revenues include:
•
•
Fees collected from policyholders in connection with the costs incurred for the Company’s yearly billing plans, which are
recognized over the terms of the underlying policies; and
Fees received for the administration of a portion of the FA and other policies.
Other revenues are recognized on an accrual basis and include commission revenues received from external insurance providers by
consolidated brokers and revenues related to supply chain operations.
10 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Claims liabilities
b)
Claims liabilities are established to reflect the estimate of the full amount of all liabilities associated with the insurance contracts earned
at the balance sheet date, including IBNR, that have occurred on or before the balance sheet date. They also include a provision for
adjustment expenses representing the estimated ultimate expected costs of investigating, resolving and processing these claims
(usually referred to as loss adjustment expenses or LAE).
Claims liabilities are first determined on a case-by-case basis as insurance claims are reported. They are reassessed as additional
information becomes known. Claims liabilities are estimated by the appointed actuaries using generally accepted actuarial standard
techniques and are based on assumptions that represent best estimates of possible outcomes, such as historical loss development
factors and payment patterns, claims frequency and severity, inflation, reinsurance recoveries, expenses, as well as changes in the
legal and regulatory environment, taking into consideration the circumstances of the Company and the nature of the insurance policies.
The ultimate amount of these liabilities will vary from the best estimate made for a variety of reasons, including additional information
with respect to the facts and circumstances of the insurance claims incurred. Actuaries are required to include margins in some
assumptions to recognize the uncertainty in establishing this best estimate, to allow for possible deterioration in experience and to
provide greater comfort that the actuarial liabilities are sufficient to pay future benefits.
Claims liabilities are discounted to consider the time value of money, using a rate that reflects the estimated market yield of the
underlying assets backing these claims liabilities at the reporting date. Anticipated payment patterns are revised from time to time to
reflect the most recent trends and claims environment. This ensures getting the most accurate and representative market yield-based
discount rate.
Claim liabilities include periodic payment orders which are settlements in the form of annuities awarded by UK courts on some high
value injury claims where the claimant’s quality of life has been impaired due to severe injuries. These annuities are payable until
death and increase annually, applying a defined index set in the court decision, usually linked to care provider professionals’ salaries
and are eligible for reinsurance where applicable.
Claims liabilities are deemed to be settled when the contract expires, is discharged or cancelled.
c)
Reinsurance assets
The Company reports third party reinsurance balances on the Consolidated balance sheets on a gross basis to indicate the extent of
credit risk related to third party reinsurance. The estimates for the reinsurers’ share of claims liabilities and unearned premiums are
presented as assets and are determined on a basis consistent with the related claims liabilities and unearned premiums respectively.
Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises
during the reporting period. For retroactive reinsurance contracts, the premium ceded is recognized in Net income net of the related
risk margin release at inception.
Deferred acquisition costs
d)
Policy acquisition costs incurred in acquiring insurance premiums include commissions, premium taxes, levies, and other costs directly
related to the writing or renewal of insurance policies. These acquisition costs are deferred and amortized on the same basis as the
unearned premiums and are reported in Underwriting expenses. Deferred acquisition costs are written off when the corresponding
contracts are settled or cancelled.
e)
Liability adequacy test
At the end of each reporting period, a liability adequacy test is performed to validate the adequacy of unearned premiums and deferred
acquisition costs. A premium deficiency would exist if unearned premiums were deemed insufficient to cover the estimated future
costs associated with the unexpired portion of written insurance policies. A premium deficiency would be recognized immediately as
a reduction of deferred acquisition costs to the extent that unearned premiums plus anticipated investment income are not considered
adequate to cover for all deferred acquisition costs and related insurance claims and expenses. If the premium deficiency is greater
than the unamortized deferred acquisition costs, a liability is accrued for the excess deficiency.
INTACT FINANCIAL CORPORATION 11
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
2.4 Financial instruments
a)
Classification and measurement of financial assets and financial liabilities
Table 2.2 – Classification of the Company’s most significant financial assets and financial liabilities
Classification
Financial
instruments Description
AFS
Debt securities
Common
shares and
preferred
shares
Other
instruments
Investments intended to be held for an indefinite period and
which may be sold in response to liquidity needs or
changes in market conditions.
Investments neither classified nor designated as FVTPL.
Investments in mutual and private funds.
Designated as
FVTPL on
initial
recognition
Debt securities
backing claims
liabilities and
some common
shares
A portion of the Company’s investments backing its claims
liabilities has been voluntarily designated as FVTPL to
reduce the volatility caused by fluctuations in fair values of
underlying claims liabilities due to changes in discount
rates. To comply with regulatory guidelines, the Company
ensures that the weighted-dollar duration of debt securities
designated as FVTPL is approximately equal to the
weighted-dollar duration of claims liabilities.
Classified as
FVTPL
Common
shares
Investments purchased with the intention of generating
profits in the near term.
Derivative
financial
instruments
Embedded
derivatives
Derivatives used for economic hedging purposes and for
the purpose of modifying the risk profile of the Company’s
investment portfolio as long as the resulting exposures are
within the investment policy guidelines.
Embedded derivatives related to the Company’s perpetual
preferred shares. Treated as separate derivative financial
instruments when their economic characteristics and risks
are not clearly and closely related to those of the host
instrument. These embedded derivatives are presented in
Investments, with the related perpetual preferred shares,
on the Consolidated balance sheets.
Initial and subsequent measurement
Initially measured at fair value using transaction
prices at the trade date.
Subsequently measured at fair value using bid
prices (except as noted below for Level 3
instruments) at end of period, with changes in
fair value reported in OCI (when unrealized) or
in Net gains (losses) when realized or impaired.
Refer to Note 2.4 b) (Level 3) hereafter for
more details on the fair value measurement.
Initially measured at fair value using transaction
prices at the trade date.
Subsequently measured at fair value using bid
prices (for financial assets) or ask prices (for
financial liabilities) at end of period, with
changes in fair value reported in Net gains
(losses).
The effective portion of designated cash flow
hedges and net investment hedges in foreign
operations is recorded in foreign exchange
gains (losses) in OCI.
Contingent
considerations
Financial liability arising from a business combination to be
remeasured at fair value based on future performance.
Initially measured at fair value based on the
estimate on the date of the transaction.
Subsequently measured at fair value based on
revised estimates, with changes in fair value
reported in Acquisition, integration and
restructuring costs. Refer to Note 2.4 b) (Level
3) hereafter for more details on the fair value
measurement.
Initially measured at fair value using transaction
prices at the trade date.
Subsequently measured at amortized cost
using the effective interest method, with
changes in fair value reported in Net gains
(losses) when realized or impaired.
Amortized cost
- Cash and
cash
equivalents,
loans and
receivables
Cash and cash
equivalents
Highly liquid investments that are readily convertible into a
known amount of cash are subject to an insignificant risk of
changes in value and have an original maturity of three
months or less.
Loans and
receivables
Financial assets with fixed or determinable payments not
quoted in an active market (including securities purchased
under reverse repurchase agreements).
12 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Financial
instruments
Debt outstanding
Classification
Amortized
cost - Other
financial
liabilities
Description
Financial liabilities with fixed or determinable
payments and maturity date, such as the Company’s
Senior, medium-term and subordinated notes, term
loan and amount drawn under a credit facility.
Securities sold
under repurchase
agreements
The sale of securities together with an agreement to
repurchase them in the short-term, at a set price and
date.
Initial and subsequent measurement
Initially measured at fair value at the
issuance date net of transaction costs.
Subsequently measured at amortized cost
using the effective interest method, with
changes in fair value reported in Net gains
(losses) when the liability is extinguished.
Initially measured at fair value at the
amount owing.
Subsequently measured at amortized cost
using the effective interest method.
Fair value measurement
b)
The fair value of financial instruments on initial recognition is normally the transaction price, being the fair value of the consideration
given or received. After initial recognition, the fair value of financial instruments is determined based on available information and
categorized according to a three-level fair value hierarchy.
Table 2.3 – Three-level fair value hierarchy
Levels
Description
Type of financial instruments normally classified as such
Level 1
Quoted prices in active
markets for identical assets or
liabilities
Level 2
Level 3
Valuation techniques for
which all inputs that have a
significant effect on the fair
value are observable (either
directly or indirectly)
Valuation techniques for
which inputs that have a
significant effect on the fair
value are not based on
observable market data
1 Measured at amortized cost with fair value disclosed.
Level 1
•
Short-term traded government debt securities
• Common shares and preferred shares
•
•
•
Investments in mutual funds
Exchange-traded derivatives
All Government and Corporate debt securities, except for those securities
deemed to be Level 1
• Debt outstanding1
•
ABS and MBS
• Over-the-counter derivatives
•
•
Loans1
Embedded derivatives related to perpetual preferred shares with call option
• Hedge and private funds
• Contingent considerations
A financial instrument is regarded as quoted in an active market if quoted prices for that financial instrument are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual
and regularly occurring market transactions on an arm’s length basis.
Level 2
Where the fair values of financial assets and financial liabilities cannot be derived from active markets, they are determined using a
variety of valuation techniques that include the use of discounted cash flow models and/or mathematical models.
For discounted cash flow models, estimated future cash flows and discount rates are based on current market information and rates
applicable to financial instruments with similar yields, credit quality and maturity characteristics.
• Estimated future cash flows are influenced by factors such as economic conditions (including country specific risks),
concentrations in specific industries, types of instruments, currencies, market liquidity and financial condition of
counterparties.
• Discount rates are influenced by risk free interest rates and credit risk.
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The inputs to these models are derived from observable market data where possible. Inputs used in valuations include:
• Prevailing market rates for bonds with similar characteristics and risk profiles;
• Closing prices of the most recent trade date subject to liquidity adjustments; or
• Average brokers’ quotes when trades are too sparse to constitute an active market.
Level 3
The Company uses input parameters that are not based on observable market data. Non-market observable inputs use fair values
determined in whole or in part using a valuation technique or model based on assumptions that are neither supported by prices from
observable current market transactions for the same instrument nor based on available market data. In these cases, judgment is
required to establish fair values. Changes in assumptions about these factors could affect the reported fair value of financial
instruments.
•
Loans – The fair value of loans is determined using a valuation technique based on the income approach. Future inflows of
principal and interest are discounted using a pre-tax risk-free rate from a Government bonds curve plus a risk premium that
is based on the credit risk to which the Company would be exposed from the borrowers. The Company ensures that the
discount rate is consistent with borrowing rates on similar loans issued by financial institutions. The Company receives
guarantees for loans.
• Embedded derivatives related to perpetual preferred shares call options – The fair value of the Company’s perpetual
preferred shares call options (which give the issuer the right to redeem the shares at a particular price) has to be measured
separately from preferred shares and accounted for as an embedded derivative. To determine the fair value of embedded
derivatives, the Company uses a valuation technique based on the implied volatility of underlying preferred shares. The
implied volatility is an unobservable parameter that is calculated using an internally developed valuation model, which can
be significantly affected by market conditions. Judgment is also required to determine the time period over which the volatility
is measured.
• Hedge funds and private funds – Hedge funds and private funds are measured at fair value for which the net assets value
(‘’NAV’’) is generally the practical expedient. The Company employs several procedures to assess the reasonableness of
the NAV reported by the fund, including obtaining and reviewing periodic and audited financial statements and discussing
each fund’s pricing with the fund manager throughout the year. In the event the Company believes that its estimate of the
NAV differs from that reported by the fund due to illiquidity or other factors, the Company will adjust the fund’s reported NAV
to more appropriately represent the fair value of its interest in the investment.
• Contingent considerations – The fair value of the contingent considerations is based on future revenues or profitability
metrics discounted using a rate adjusted for specific risks related to the transaction using information as at the measurement
date.
Derivative financial instruments and hedging
c)
The Company enters a variety of derivative financial instruments to manage its exposure arising from financial assets, financial
liabilities and the RSA acquisition (refer to Note 8.3 – Currency hedging in relation with the RSA acquisition for more details). Derivative
financial instruments are financial contracts whose value is derived from an underlying interest rate, foreign exchange rate, equity or
commodity instrument or index. The Company uses derivatives for economic hedging purposes and for the purpose of modifying the
risk profile of the Company’s investment portfolio as long as the resulting exposures are within the investment policy guidelines. In
certain circumstances, these hedges also meet the requirements for hedge accounting. Risk management strategies when eligible
for hedge accounting have been designated as cash flow hedges or net investment hedges in a foreign operation and fair value
hedges.
Derivatives are initially measured at fair value at the trade date and subsequently remeasured at fair value at the end of each reporting
date. Derivative financial instruments with a positive fair value are recorded as assets while derivative financial instruments with a
negative fair value are recorded as liabilities. Changes in fair value are recorded in Net gains (losses) unless the derivative financial
instruments are part of a qualified hedging relationship.
Net investment hedges – The Company uses foreign currency derivatives to manage its book value exposure to foreign operations
with a functional currency other than CAD. Where the Company has elected to apply hedge accounting, the effective portion of gains
or losses on hedging derivatives, together with foreign exchange translation gains or losses on foreign operations, is recorded in
Foreign exchange gains (losses) in OCI.
14 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Cash flow hedges – The Company used foreign currency derivatives to hedge the RSA purchase price exposure to fluctuations in
foreign exchange rates. The Company also uses “fixed to fixed” interest rate swaps to hedge changes in the fair value of fixed income
securities. Where the Company has elected to apply hedge accounting, the effective portion of changes in the fair value of the
derivatives are recognized in OCI and the ineffective portion is recognized in Net gains (losses) in Net income.
The Company uses foreign currency derivatives to hedge a portion of the selling price of the Danish business. Refer to Note 8.4 –
Hedge of an investment in associate held for sale for details.
Fair value hedges – The Company uses “fixed to floating” interest rate swaps to hedge changes in the fair value of fixed income
securities. Where the Company has elected to apply hedge accounting, the gains and losses on hedging instruments are recorded in
Net gains (losses) in Net income and the change in fair value of the hedged item that are attributable to the hedged risk is transferred
from AOCI to Net income.
The Company uses foreign currency denominated debt, cross-currency swaps and foreign currency forwards to manage a portion of
its fair value exposure to the DKK relative to the CAD for the Danish business classified as an investment in associate held for sale.
Refer to Note 8.4 – Hedge of an investment in associate held for sale for details.
Derivatives that qualify for hedge accounting
A hedging relationship is designated and documented at inception. Hedge effectiveness is evaluated at inception and throughout the
term of the hedge. Hedge accounting is only applied when the Company expects that the hedging relationship will be highly effective
in achieving offsetting changes in fair value or changes in cash flows attributable to the risk being hedged.
Hedge accounting is discontinued prospectively when it is determined that the hedging instrument is no longer effective as a hedge,
the hedging instrument is terminated or sold, or upon the sale or early termination of the hedged item.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments, while providing effective economic hedges, are not designated as hedges for accounting purposes.
Changes in the fair value of such derivatives are recognized in Net gains (losses). See Note 8 – Derivative financial instruments for
details.
Recognition of financial assets and financial liabilities
d)
Financial assets are no longer recorded when the rights to receive cash flows from the instruments have expired or have been
transferred and the Company has transferred substantially all the risks and rewards of ownership. Financial liabilities are no longer
recorded when they have expired or have been cancelled. Refer to Table 2.2 for the initial recognition of financial assets and financial
liabilities.
Securities lending – The Company participates in a securities lending program to generate fee income by lending securities it owns
to other financial institutions to allow them to meet their delivery commitments. Financial assets lent by the Company in the course of
securities lending operations remain on the Consolidated balance sheets because the Company has not substantially transferred the
risks and rewards related to the lent assets.
Securities purchased under reverse repurchase agreements and sold under repurchase agreements – The Company
purchases securities from major Canadian financial institutions with an agreement to resell them to the original seller in the short-term
(reverse repurchase agreements), at a set price and date. It also sells securities to major Canadian financial institutions together with
an agreement to repurchase them in the short-term (repurchase agreements), at a set price and date.
Securities purchased in the course of reverse repurchase agreements are not recognized on the Consolidated balance sheets
because the seller substantially retained the risks and rewards related to the assets sold. The commitment to resell the assets
purchased is presented in Financial assets related to investments in Other assets in the Consolidated balance sheets.
Securities sold in the course of repurchase agreements remain on the Consolidated balance sheets because the Company has not
substantially transferred the risks and rewards related to the assets sold. The obligation to repurchase the assets sold is presented in
Financial liabilities related to investments in the Consolidated balance sheets.
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Structured settlements – The Company enters into annuity agreements with various Canadian life insurance companies to provide
for fixed and recurring payments to claimants.
• When the annuity agreements are non-commutable, non-assignable and non-transferable, the Company is released by the
claimant for the settlement of the claim amount. As a result, the liability to its claimants is substantially discharged and the
Company removes that liability from its Consolidated balance sheets. However, the Company remains exposed to the credit
risk that life insurers may fail to fulfill their obligations.
• When the annuity agreements are commutable, assignable, or transferable, the Company keeps the liability and the
corresponding asset on its Consolidated balance sheets.
e)
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset, and the net amount is reported on the Consolidated balance sheets only when there
is:
• A legally enforceable right to offset the recognized amounts; and
• An intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
f)
Revenue and expense recognition
Net investment income
Interest income from debt securities and loans is recognized on an accrual basis.
•
• Premiums and discounts on debt securities classified as AFS, as well as premiums earned, or discounts incurred for loans
and AFS securities are amortized using the effective interest method.
• Dividends are recognized when the shareholders’ right to receive payment is established, which is the ex-dividend date.
Net gains (losses)
• Gains and losses on the sale of AFS debt and equity securities are generally calculated on a first in, first out basis, except
•
•
•
for certain equity strategies.
Transaction costs associated with the acquisition of financial instruments classified or designated as FVTPL are expensed
as incurred; otherwise, transaction costs are capitalized on initial recognition and amortized using the effective interest
method.
Transaction costs incurred at the time of disposition of a financial instrument are expensed as incurred.
If there is a change of control, any retained equity instrument is remeasured at fair value as at the acquisition or disposal
date and any resulting gain or loss is recognized in income.
Impairment of financial assets other than those classified or designated as FVTPL
g)
The Company determines, at each balance sheet date, whether there is objective evidence that a financial asset or a group of financial
assets, other than those classified or designated as FVTPL, are impaired. Those financial assets are impaired according to either a
debt, equity, or loans and receivables impairment model. The appropriate impairment model is determined based on the
characteristics of each instrument, the capacity of the issuer to pay dividends or interest and the Company’s intention to either hold
the preferred shares for the long term or sell them. Objective evidence of impairment includes:
Debt impairment model
• One or more loss events (a payment default for example) that occurred after initial recognition and that has an impact on the
estimated future cash flows of the financial asset.
Increased probability that the future cash flows will not be recovered based on counterparty credit rating considerations.
•
16 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Equity impairment model
• A significant, a prolonged, or a significant and prolonged decline in the fair value of an investment below cost.
•
Information about significant changes with an adverse effect that have taken place in the technological, market, economic or
legal environment in which an issuer operates, indicating that the cost of an equity instrument may not be recovered.
Table 2.4 – Objective evidence of impairment for equity impairment model
Unrealized loss position
Common shares
Significant
Prolonged
Unrealized loss of 50% or more
Unrealized loss for 15 consecutive months or more
Significant and prolonged
Unrealized loss for 9 consecutive months or more and unrealized loss of 25% or more
Considering the COVID-19 crisis, the Company evaluated additional factors before concluding there was evidence of impairment
(refer to Note 25.2 – Significant accounting judgments, estimates and assumptions).
Loans and receivables impairment model
A payment default or when there are objective indications that the counterparty will not honour its obligations.
The following table summarizes the measurement and recognition of impairment losses.
Table 2.5 – Impairment models
Debt
• Debt securities
Equity
Loans and receivables
• Common shares
•
Loans and receivables:
n
o
i
t
a
c
i
l
p
p
A
•
•
Preferred shares redeemable
at the option of the holder
•
Perpetual preferred shares
purchased with the intent of
holding for the long-term1
Perpetual preferred shares
not impaired using the debt
impairment model1
Significant (tested individually)
Otherwise (grouped by similar
characteristics for testing)
s
s
o
L
-
e
r
u
s
a
e
m
t
n
e
m
Difference between amortized cost
and current fair value less any
unrealized loss on that security
previously recognized
Difference between acquisition
cost and current fair value less
any impairment loss on that
security previously recognized
Difference between amortized cost and the present
value of the estimated future cash flows
d
e
t
r
o
p
e
R
s
s
o
l
r
i
a
f
t
n
e
u
q
e
s
b
u
S
s
e
s
a
e
r
c
n
i
e
u
l
a
v
Impairment loss removed from OCI and recognized in Net gains
(losses)
Impairment loss recognized in Net gains (losses)
Recognized in Net gains (losses)
when there is observable positive
development on the original
impairment loss event. Otherwise,
recognized in OCI
Recognized directly in OCI
Impairment losses are not
reversed
Provision can be reversed when the event that gave
rise to its initial recognition subsequently disappears
Recognized in Net gains (losses) when there has
been a change in the estimates used to determine
the asset’s recoverable amount since the last
impairment loss was recognized
1 Since the business model of the Company is to purchase preferred shares for the purpose of earning dividend income, with the intent of holding them
for the long-term, virtually all preferred shares are assessed for impairment using a debt impairment model.
2.5 Business combination
Business combinations are accounted for using the acquisition method. The purchase consideration is measured at fair value at
acquisition date. At that date, the identifiable assets acquired, and liabilities assumed are estimated at their fair value. Acquisition-
related costs are expensed as incurred. When the Company acquires a business, it assesses financial assets acquired and financial
liabilities assumed for appropriate classification and designation in accordance with the contractual term, economic circumstances,
and relevant conditions at the acquisition date. The excess of the purchase consideration over the fair value of the net identifiable
assets acquired and liabilities assumed in a business combination results in Goodwill. When the excess is negative, a bargain gain is
recognized in Net income.
INTACT FINANCIAL CORPORATION 17
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
2.6 Goodwill and intangible assets
a)
Goodwill
Goodwill is initially measured at cost, being the excess of the fair value of the consideration transferred over the Company’s share in
the net identifiable assets acquired and liabilities assumed in a business combination. After initial recognition, goodwill is measured
at cost less any accumulated impairment losses.
Goodwill is allocated to CGUs, or groups of CGUs, that are expected to benefit from the business combination in which they arose.
Impairment testing is performed at least annually, on June 30, or more frequently if there are objective indicators of impairment, by
comparing the recoverable amount of a CGU with its carrying amount. Impairment testing is undertaken at the lowest level at which
goodwill is monitored for internal management purposes, which corresponds to the Company’s operating segments (refer to Note 31 –
Segment information).
Upon disposal of a portion of a CGU, the carrying amount of goodwill related to the portion of the CGU sold is included in the
determination of gains and losses on disposal. The carrying amount is determined based on the relative fair value of the disposed
portion to the total CGU.
Intangible assets
b)
The Company’s intangible assets consist of distribution networks, customer relationships, trade names and internally developed
software.
• Distribution networks represent the contractual agreements between the Company and unconsolidated brokers for the
distribution of its insurance products. It also includes selling insurance through affinity partnerships, usually to a group of
similar customers such as store-card holders, alumni groups, unions and utility company customers.
• Customer relationships represent the relationships that exist with the policyholders, either directly (as a direct insurer) or
indirectly (through consolidated brokers).
Intangible assets are initially measured at cost. The useful lives of intangible assets are assessed to be either finite or indefinite. For
each distribution network acquired, that assessment depends on the nature of the distribution network. When the related cash flows
are expected to continue indefinitely, intangible assets are assessed as having an indefinite useful life.
Intangible assets with finite lives are amortized over their useful lives and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. Intangible assets with indefinite lives, as well as those intangible assets that are under
development, are not subject to amortization, but are tested for impairment on an annual basis.
The amortization method and terms of intangible assets assessed as having finite useful lives are shown below.
Table 2.6 – Amortization methods and terms of intangible assets – finite useful life
Intangible assets
Distribution networks
Customer relationships
Trade names
Internally developed software
Method
Straight-line
Straight-line
Straight-line
Straight-line
Term
6 to 25 years
3 to 15 years
3 to 10 years
3 to 10 years
Amortization of intangible assets is included in Other expenses in the Consolidated statements of income.
2.7 Foreign currency translation
The Consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. The functional
currency is the currency of the primary economic environment in which an entity operates. The functional currency of most foreign
subsidiaries is their local currency.
18 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Foreign currency transactions
Transactions denominated in foreign currencies are initially recorded in the functional currency of the related entity using the exchange
rates in effect at the date of the transaction.
• Monetary assets and liabilities denominated in foreign currencies are translated using the closing exchange rates. Any
resulting exchange difference is recognized in Net income.
• Non-monetary assets and liabilities denominated in foreign currencies and measured at historical cost are translated using
historical exchange rates, and those measured at fair value are translated using the exchange rate in effect at the date the
fair value is determined.
• Revenues and expenses are translated using the average exchange rates for the period or the exchange rate at the date of
the transaction for significant items.
• Net foreign exchange gains and losses are recognized in income except for AFS equity securities where unrealized foreign
exchange gains and losses are recognized in OCI until the asset is sold or becomes impaired.
Foreign operations
• Assets and liabilities of foreign operations whose functional currency is other than the Canadian dollar are translated into
Canadian dollars using closing exchange rates.
• Revenues and expenses, as well as cash flows, are translated using the average exchange rates for the period.
•
Translation gains or losses are recognized in OCI and are reclassified to income on disposal or partial disposal of the
investment in the related foreign operation.
The exchange rates used in the preparation of the Consolidated financial statements were as follows:
Table 2.7 – Exchange rates used
USD vs CAD
GBP vs CAD1
EUR vs CAD1
DKK vs CAD2
As at December 31,
Average rate for the years
2021
1.26450
1.71017
1.43850
0.19342
2020
1.27210
1.73972
1.55412
n/a
2021
1.25359
1.72431
1.48257
0.19687
2020
1.34104
1.72588
1.55619
n/a
1 For 2020, the average rate reflects the period from November 18 to December 31, 2020 in relation to the RSA acquisition.
2 For 2021, the average rate reflects the period from June 1 to December 31, 2021 in relation to the RSA acquisition.
Investments in associates and joint ventures
2.8
The Company’s investments in associates and joint ventures are initially recorded at the amount of consideration paid, which includes
the fair value of tangible assets, intangible assets and goodwill identified on acquisition, plus post-acquisition changes in the
Company’s share of their net assets. They are subsequently measured using the equity method.
The Company’s profit or loss from such investments is shown in Share of profit from investments in associates and joint ventures and
reflects the after-tax share of the results of operations of the associates and joint ventures. The Company determines at each reporting
date whether there is any objective evidence that investments in associates and joint ventures are impaired.
2.9 Property and equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation terms are established to depreciate the cost
of the assets over their estimated useful lives. Depreciation methods and terms are shown below.
Table 2.8 – Depreciation methods and terms of property and equipment
Property and equipment
Buildings
Furniture and equipment
Leasehold improvements
Method
Straight-line
Straight-line
Straight-line
Term
15 to 40 years
2 to 10 years
Over the terms of related leases or 10 years
INTACT FINANCIAL CORPORATION 19
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
2.10 Investment property and rental income
Investment property includes land and buildings mainly located in the UK which are held to earn rental income and are externally
managed and not owner-occupied.
Investment property is initially measured at cost, including transaction costs, and is subsequently measured at fair value based on
revised estimates, with changes in fair value reported in Net gains (losses) in Net income. Rental income from the related operating
leases is recognized as Investment income in Net income on a straight-line basis over the length of the lease.
It is classified as Level 3 in the fair value hierarchy and valued, at least annually at their highest and best use by external, independent
valuers (refer to Note 2.4 b) (Level 3) for explanations on the hierarchy). The valuation techniques include the comparative method
with reference to sales of other comparable buildings as well as discounted cash flow models which consider the net present value of
cash flows to be generated from the properties. The cash flow streams reflect the current rent payable to lease expiry, at which point
each unit is assumed to be re-let at its estimated rental value. The discount rate considers many factors such as recent transactions
on similar properties, building location and quality, tenant credit quality and lease terms.
2.11 Leases
On the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset is initially measured
at cost, which corresponds to the value of the lease liability adjusted for any lease payment made at or before the commencement
date, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the
lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the Company’s incremental borrowing rate for a similar asset. Lease payments included in the measurement of the
lease liability comprise fixed payments, reduced by any incentives receivable, and exclude operational costs and variable lease
payments. The lease liability is subsequently measured at amortized cost using the effective interest method.
The Company presents right-of-use assets in Property and equipment and lease liabilities in Other liabilities in the Consolidated
balance sheets. The interest and depreciation expense are presented in Finance costs and Underwriting expenses respectively in the
Consolidated statements of income.
2.12 Asset held for sale
Assets are classified as held for sale when the carrying amount is to be recovered principally through a sale transaction rather than
through continued use and such sale is considered highly probable. Assets held for sale are measured at the lower of their carrying
amount or fair value less costs to sell.
2.13 Income taxes
Income tax expense (benefit)
a)
Income tax is recognized in Net income, except to the extent that it relates to items recognized in OCI, or directly in equity where it is
recognized in OCI or equity. Income tax expense (benefit) comprises current and deferred tax.
• Current income tax is based on current year’s results of operations, adjusted for items that are not taxable or not deductible.
Current income tax is calculated based on income tax laws and rates enacted or substantively enacted as at the balance
sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and provisions are established where appropriate based on amounts expected
to be paid to the tax authorities.
• Deferred income tax is provided using the liability method on temporary differences between the carrying value of assets
and liabilities and their respective tax values. Deferred tax is calculated using income tax laws and rates enacted or
substantively enacted as at the balance sheet date, which are expected to apply when the related deferred tax asset is
realized, or the deferred tax liability is settled. Deferred tax assets are recognized for all deductible temporary differences as
well as unused tax losses and tax credits to the extent that it is probable that taxable profit will be available against which the
losses can be utilized. For each entity for which there is a history of tax losses, deferred tax assets are only recognized in
excess of deferred tax liabilities if there is convincing evidence that future profit will be available.
Deferred tax in respect of the unremitted earnings of subsidiaries, associates and joint ventures is recognized as an expense in the
year in which the profits arise, except where the remittance of earnings can be controlled and it is probable that remittance will not
take place in the foreseeable future.
20 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Recognition and offsetting of current tax assets and liabilities
b)
For each legal entity consolidated, current tax assets and liabilities are offset when they relate to the same taxation authority, which
allows the legal entity to receive or make one single net payment, and when it intends to settle the outstanding balances on a net
basis. Upon consolidation, a current tax asset of one entity is offset against a current tax liability of another entity if, and only if, entities
concerned have a legally enforceable right to make or receive a single net payment and entities intend to make or receive such net
payment or to recover the asset or settle the liability simultaneously.
2.14 Share-based payments
The Company has three types of shared-based payment plans:
a)
Long-term incentive plan
Certain key employees are eligible to participate in the LTIP. Participants are awarded notional share units referred to as PSUs and
RSUs. The PSU payout is subject to the achievement of specific targets with regards to:
•
The Company’s estimated ROE outperformance versus the global P&C industry benchmark based on a three-year average
of Canada, US and the UK weighted on the Company’s deployed capital in each country; or
The three-year average combined ratio of the US or UK operations compared to a specific target; or
•
• A combination of both.
Most RSUs automatically vest three years from the year of the grant. Vesting for RSUs is not linked to the Company’s performance.
RSUs and PSUs – Subject to the Company’s Board of Directors’ approval, certain participants can receive cash in lieu of shares of
the Company:
• Based on the plan structure; or
•
If they meet a defined share ownership threshold (“eligible participants”) and elect to receive cash.
At the time of the payout, the plan administrator purchases in the market the number of common shares based upon the vested PSUs
and RSUs, and elections of eligible participants.
The awards are estimated and valued at fair value at grant date, which corresponds to the average share price of the Company over
the last quarter of the preceding year.
The LTIP is accounted for as an equity-settled plan, except for the participants that are eligible to receive cash in lieu of shares of the
Company (accounted for as a cash-settled plan).
Equity-settled plan
The cost of the awards is recognized as an expense over the vesting period, with a corresponding entry to Contributed surplus. The
value of each award is not revalued subsequently, but the Company re-estimates the number of awards that are expected to vest at
each reporting period. The difference between the market price of the shares purchased and the cumulative cost for the Company of
these vested units, net of income taxes, is recorded in Retained earnings.
Cash-settled plan
The cost of the awards is recognized as an expense over the vesting period, with a corresponding entry to Other liabilities. The liability
is remeasured at each reporting period based on the number of awards that are expected to vest and the current share price, with
any fluctuations in the liability also recorded as an expense until it is settled.
b)
Employee share purchase plan
Employees who are not eligible for the LTIP are entitled to make contributions to a voluntary ESPP. Eligible employees can contribute
up to 10% of their annual base salary through a payroll deduction to purchase IFC common shares in the market. As an incentive to
participate in the plan the Company matches, at the end of each year, a number of shares equal to 50% of the common shares
purchased by the employees during the year (subject to certain conditions). During the following year, the common shares contributed
by the Company are purchased by an independent broker at each pay period and deposited in the employee account evenly each
pay. The common shares contributed by the Company are awarded and vested at the time they are deposited in the employee
account.
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Equity-settled plan
The fair value of awards is estimated at the grant date and is not revalued subsequently, but the Company re-estimates the number
of awards that are expected to vest at each reporting period. The cost of awards is recognized as an expense over the vesting period,
with a corresponding entry to Contributed surplus. The difference between the market price of the common shares purchased and the
cumulative cost for the Company of these vested awards, net of income taxes, is recorded in Retained earnings.
Deferred share unit plan
c)
Non-employee directors of the Company are eligible to participate in the Company’s DSU plan. A portion of the remuneration of non-
employee directors of the Company must be received in DSUs or common shares of the Company. For the remainder of their
compensation, the directors are given the choice of cash, common shares of the Company, DSUs or a combination of the three. Both
DSUs and common shares vest at the time of the grant. The DSUs are redeemed upon director retirement or termination and are
settled for cash afterwards. When directors elect to receive shares, the Company makes instalments to the plan administrator for the
purchase of shares of the Company on behalf of the directors.
Cash-settled plan
The DSUs are cash-settled awards which are expensed at the time of granting with a corresponding financial liability reported in Other
liabilities. This liability is remeasured at each reporting date based on the current share price, with any fluctuations in the liability also
recorded as an expense until it is settled.
d)
Employee stock option plan
In May 2021, the Company established an Executive Stock Option Plan (“ESOP”) for certain key executive employees of the
Company. Under the ESOP, the Human Resources and Compensation Committee may, at its discretion, from time-to-time grant
options and stock appreciation rights (“SARs”) and also determines the terms and conditions of grants.
The options entitle participants to purchase common shares of the Company at an exercise price that is normally equal to the volume
weighted average trading price per common share on the TSX for a period of a few days preceding the grant date. The options
granted generally vest over three to seven years upon achievement of performance objectives and are exercisable within a ten-year
period, except in the event of termination of employment or death.
The number of options expected to vest are estimated on the grant date and will be subsequently revised on each reporting date.
Equity-settled plan
The fair value of the options, adjusted for expectations related to performance conditions and forfeitures, is accounted for as an equity-
settled plan and is recognized as an expense over the vesting period with a corresponding credit to Contributed surplus. When the
options are exercised, any consideration paid is credited to Common shares and the recorded fair value of the options is removed
from Contributed surplus and credited to Common shares.
2.15 Employee future benefits – pension
The actuarial determination of the DB obligation uses the projected unit credit method and management’s best estimate assumptions.
DB pension expense
Cost recognized in Net income in the current period includes:
• Service cost: benefits cost provided in exchange for employees’ services rendered during the year (current service cost) or
prior years (past service cost);
• Net interest expense: change in the DB obligation and the plan assets resulting from the passage of time; and
• Administrative expenses paid from the pension assets.
The discount rate methodology used to determine the DB expense is determined with reference to the yields on high quality corporate
bonds.
Remeasurement of net DB liability (asset)
The rate used to discount the DB obligation is determined by reference to market yields on high quality corporate bonds with cash
flows that match the timing and amount of expected benefit payments, determined at the end of each reporting period.
22 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Remeasurements are recognized directly in OCI in the period in which they occur and include:
• Return on plan assets, which represents the difference between the actual return on plan assets and the return based on
the discount rate determined using high quality corporate bonds;
• Actuarial gains and losses arising from plan experience; and
• Changes in actuarial methods and assumptions, such as the discount rate used to discount the DB obligation.
Such remeasurements are also immediately reclassified to Retained earnings as they will not be reclassified to Net income in
subsequent periods.
2.16 Restructuring provision
A restructuring program will materially change the scope of the business undertaken or the manner in which the business is conducted.
A restructuring provision is recognized when the Company has a present legal or constructive obligation as a result of past events, it
is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. A
constructive obligation is when:
•
•
there is a detailed formal plan that identifies the business or part of the business concerned, the location and number of
employees affected, the detailed estimate of the associated costs, and the timeline; and
the Company has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement
that plan or announcing its main features to those affected by it.
The provision is measured at the present value of the expenditures expected to be required to settle the obligation. The restructuring
provision primarily includes severances and provisions for onerous contracts. It can relate to the integration of a business acquired or
to a restructuring to simplify the organization’s structure and drive efficiencies.
The related expense is recognized in the line Acquisition, integration and restructuring costs.
2.17 Current vs non-current
In line with industry practice for insurance companies, the Company’s balance sheets are not presented using current and
non-current classifications but are rather presented broadly in order of liquidity. Most of the Company’s assets and liabilities are
considered current given they are expected to be realized or settled within the Company’s normal operating cycle. All other assets
and liabilities are considered as non-current and generally include: Investments in associates and joint ventures, Deferred tax assets,
Property and equipment, Intangible assets, Goodwill, Deferred tax liabilities and Debt outstanding.
Note 3 – Significant accounting judgments, estimates and assumptions
3.1 Use of judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRS requires management to use judgments, estimates and assumptions
that can have a significant impact on the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as
at the balance sheet date, as well as reported amounts of revenues and expenses during the reporting period. Actual results could
differ significantly from these estimates.
The key estimates and assumptions that have a risk of causing a material adjustment to the carrying value of certain assets and
liabilities are as follows:
Description
COVID-19 pandemic
Business combination
Reference
Description
Note 3.2
Note 5.2
Impairment of financial assets
Measurement of income taxes
Valuation of claims liabilities
Note 11.3
Valuation of DB obligation
Impairment of goodwill and intangible assets
Note 15.2
Reference
Note 25.2
Note 27.3
Note 30.6
INTACT FINANCIAL CORPORATION 23
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.2 COVID-19 pandemic
On March 11, 2020, COVID-19 was declared a pandemic by the World Health Organization. The magnitude of the impact of the
COVID-19 crisis on the economy and financial markets continues to evolve while also contributing to increased market volatility and
changes to the macroeconomic environment. Support from governments to businesses and economies, as well as the climbing
COVID-19 vaccination rate, supported positive momentum in equity markets in 2021. Nevertheless, capital markets are expected to
remain volatile due to inflation trends and the ongoing pandemic.
The Company continues to manage the impact on its business and believes that its operations and financial position remain strong
and that it is well positioned to deal with this crisis.
The effects of the COVID-19 crisis related to emerging coverage issues and claims, including certain class actions relating to business
interruption coverage and related defence costs, as well as other indirect claims could negatively impact the Company’s claims
reserves. In Canada, most commercial policies, except in very limited instances, do not provide for business interruption coverage in
the context of a closure due to COVID-19 since direct physical loss or damage is required to trigger this coverage. The Company
plans to contest these class actions vigorously. In the event that these cases result in a significant judgment against the Company,
the resulting liability could be material. In the UK&I, the current assessment of Claims liabilities reflects relevant court judgments in
the UK and Ireland. However, the resulting liability could be materially different from the current estimate as legal interpretations and
regulatory expectations develop and clarify the criteria for eligible claims and the extent to which losses are recoverable under
reinsurance agreements responds in the manner the Company expects. Based on information currently known, the Company does
not believe that the outcome of these cases will have a material impact on its consolidated financial condition, cash flows, or results
of operations.
As the COVID-19 crisis continues to evolve, the extent to which it may impact the Company’s operations will depend on future
developments including the effectiveness of measures to contain the spread of the virus, such as the retightening of lockdown
measures, the effective roll out of vaccinations and actions that will be taken by the governments and central banks to stabilize
economic conditions. Consequently, the Company’s financial results will be subject to volatility.
The increased uncertainty required management to use judgements, estimates and assumptions related to the COVID-19 crisis. As
a result, the Company has provided additional disclosures on the following areas impacted by COVID-19:
•
•
•
•
The valuation of the Company’s investments (refer to Note 25 – Net gains (losses));
The valuation of the DB obligation and the related plan assets (refer to Note 30 – Employee future benefits);
The valuation of provisions in Claims liabilities to reflect the potential risks for certain lines of business (refer to Note 11 –
Claims liabilities);
The customer relief measures (see below).
Customer relief measures
In 2020, the Company provided customer relief measures including premium reductions to reflect changes in driving habits and lower
business activity resulting from COVID-19 as well as a cap and reduction in rates on renewal and new business. The Company also
provided flexible payment options and immediate relief measures for small business customers. For the year ended December 31,
2020, these premium reductions including the above small business customer relief measures have negatively impacted DPW by
$419 million along with NEP by $236 million.
In March 2021, the Company announced new additional support, equivalent to one month of premiums, for eligible personal auto
customers in Canada to reflect changes in driving habits during the second wave of COVID-19 pandemic. The program closed during
the second quarter of 2021. For the year ended December 31, 2021, these additional measures negatively impacted DPW and NEP
equally by $105 million, respectively. Refer to Note 2.3 a) Revenue recognition and premiums receivable for the accounting policy
on premium reductions.
The Company applied judgment in its evaluation of bad debt expense and allowance for doubtful accounts on Premiums and other
customer receivables, it considered flexible payment options as well as the experience during the crisis and in past economic
downturns. As a result, for the year ended December 31, 2020, the Company recognized a bad debt expense of $35 million, mainly
as a part of Underwriting expenses. For the year ended December 31, 2021, the impact was not significant.
24 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 4 – Adoption of new accounting standards
The following amendments to existing standards are effective for annual periods beginning on or after January 1, 2021:
Interest rate benchmark reform – Phase 2
4.1
In August 2020, the IASB issued amendments to IFRS 9 – Financial instruments (“IFRS 9”), IAS 39 – Financial instruments: recognition
and measurement (“IAS 39”), IFRS 7 – Financial instruments: disclosures, IFRS 4 and IFRS 16 – Leases. The amendments
complement those issued in 2019 and focus on the effects on financial statements when an entity replaces an old interest rate
benchmark with an ARR as part of the IBOR reform.
The amendments clarify that, if the contractual cash flows of a financial instrument are modified as a result of the reform, an entity
updates the effective interest rate to reflect the change instead of derecognizing it or adjusting its carrying amount. In addition, hedge
accounting relationships shall not be discontinued if changes are required by the reform, as long as the hedge meets other hedge
accounting criteria.
As a result of the transition to ARRs, certain benchmark rates may be subject to discontinuance, changes in methodology, increased
volatility or decreased liquidity. The Company, as a holder of certain IBOR-based instruments, is exposed to increased financial,
operational, legal and regulatory risks as the rates transition. In order to manage those risks, the Company has established an
enterprise-wide IBOR Transition Working Group, supported by senior management, to coordinate the transition from IBORs to ARRs,
and to monitor the development and adoption of ARRs across the industry. The Company is progressing on its transition plan and
incorporating market developments as they arise.
The Company’s exposure to IBORs that have yet to transition to ARRs as at December 31, 2021 consists of financial assets of
approximately $246 million related to the USD LIBOR and $162 million related to GBP LIBOR. The Company holds other financial
instruments indexed to US LIBOR tenors which will mature before their related transition dates, therefore no additional disclosure was
provided. The Company’s financial instruments exposed to the CDOR are indexed to tenors that will continue as benchmark rates.
The amendments were adopted retrospectively with no impact on the Consolidated financial statements.
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 5 – Business combination
5.1 Business combination
The Company completed the following acquisition during the year ended December 31, 2021:
RSA Insurance Group plc
On June 1, 2021, the Company, together with the Scandinavian P&C leader Tryg A/S (“Tryg”), completed the all-cash acquisition for
the entire issued share capital of RSA, a multinational insurance group with strong positions in the P&C insurance market in the UK,
Scandinavia and Canada along with supporting international business in Ireland, Continental Europe and the Middle East.
RSA shareholders received 685 pence per ordinary share from the Company which represented an aggregate cash consideration of
£7.2 billion ($12.3 billion). On the same day, the Company sold a portion of the Scandinavia operations to Tryg for £4.2 billion which
was used to partially fund the consideration paid to RSA’s shareholders. The total consideration paid to RSA shareholders consists
of:
•
•
£3.0 billion ($5.1 billion) for the acquisition of RSA’s Canadian, UK and International operations and the 50% co-share of
RSA’s Danish business; and
£4.2 billion ($7.2 billion) for the acquisition of RSA’s Sweden and Norway businesses and the 50% co-share of RSA’s
Danish business which was sold to Tryg on the same day. The disposed assets and associated liabilities are presented as
held for sale in the fair value of assets acquired and liabilities assumed of Table 5.1 – Business combination.
Subsequently, on June 11, 2021, the Company announced that together with Tryg it has entered into a definitive agreement to sell
RSA’s Danish business to Alm. Brand A/S Group (“Alm. Brand”) for a total cash consideration of approximately DKK 12.6 billion
($2.6 billion) of which the Company will receive 50% of the proceeds of approximately DKK 6.3 billion ($1.3 billion). Refer to Note
19 – Asset held for sale.
In 2020, financing for the purchase price of $5.1 billion (£3.0 billion) for the Company’s retained portion, and related transaction fees
of approximately $0.7 billion, was raised with $4.45 billion of private placement subscription receipts, a USD478 million ($577 million)
bank term loan facility drawn on closing, $600 million of medium-term notes and the remaining balance was raised with $250 million
of subordinated notes issued on March 31, 2021. Refer to Note 20 – Debt outstanding and Note 21 – Common shares and preferred
shares.
The Company hedged the purchase price and other items to foreign currency fluctuations. Refer to Note 8.3 – Currency hedging in
relation with the RSA acquisition.
As part of the acquisition, the Company assumed the full amount of RSA’s outstanding issued debt and other equity instruments which
totals £0.8 billion ($1.4 billion) and £0.4 billion ($0.7 billion), respectively as at June 1, 2021. Refer to Note 20 – Debt outstanding,
Note 22.2 – Tier 1 notes issued by RSA and Note 22.3 – Preferred shares issued by RSA.
The Company also retains and guarantees the obligations of the closed RSA UK pension plans and has provided funding
commitments. Refer to Note 30.1 b) – Employee future benefits in relation to the RSA acquisition.
The acquisition expands the Company's leadership position in Canada, creates a leading specialty lines platform with international
expertise and provides an opportunity to enter the UK and Ireland markets at scale.
The following table summarizes the consideration and the preliminary fair value of the assets acquired and liabilities assumed as at
the acquisition date including the Scandinavian assets and liabilities held for sale. The provisional fair values have been reassessed,
since the second quarter of 2021, in light of additional information obtained during the measurement period following the acquisition.
The adjustments were recorded prospectively since they were not significant. The final determination of the fair value will be completed
within the prescribed period of one year following the acquisition.
26 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 5.1 – Business combination
As at the acquisition date (June 1, 2021)
Purchase price
Cash consideration1
Purchase price hedge (Note 8.3)
Total purchase price
Fair value of the identifiable assets acquired and liabilities assumed
Assets
Investments2
Premiums receivable
Reinsurance assets
Deferred tax assets3
Deferred acquisition costs
Property and equipment
Intangible assets
Other
Assets held for sale4
Liabilities
Claims liabilities
Unearned premiums
Deferred tax liabilities3
Debt outstanding5
Other
Liabilities associated with assets held for sale4
Total identifiable net assets acquired
Non-controlling interests (Note 22)
Gain on bargain purchase
GBP
7,182
-
7,182
8,331
2,305
2,607
256
538
180
1,223
959
8,982
(6,804)
(3,105)
(258)
(829)
(2,153)
(4,273)
7,959
(642)
(135)
CAD
12,311
28
12,339
14,283
3,952
4,470
440
921
309
2,096
1,642
15,399
(11,664)
(5,324)
(442)
(1,421)
(3,691)
(7,326)
13,644
(1,101)
(204)
Exchange rate (GBP/CAD)
1 Includes proceeds from Tryg of $7.2 billion (£4.2 billion).
2 Includes cash and cash equivalents acquired of $1,263 million (£736 million).
3 Considers changes in the UK Corporate tax rate from 19% to 25% enacted in May 2021 and effective on April 1, 2023.
4 Represents RSA’s Sweden and Norway businesses and 50% of RSA’s Danish business sold to Tryg as well as the Company’s 50% interest in RSA’s
1.71431
Danish business (Refer to Note 19 – Asset held for sale).
5 The Company repaid part of the debt assumed ahead of the maturity date (Refer to Note 20 – Debt outstanding).
The gain on bargain purchase of $204 million is non-taxable and represents the difference between the purchase price paid for RSA
and the fair value of the identifiable net assets acquired less the amount of non-controlling interests. The gain considers various items
including the difference between the valuation of the pension plan liability used to determine the transaction price and the recognition
and measurement principles defined by IAS 19 – Employee benefits.
The customer relationships, distribution networks and the trade names will be amortized over a three to seven year, six to twenty year
and three to ten-year period, respectively, and vary by country. Refer to Note 5.2 below for details on how management determined
the fair value of the intangible assets on acquisition.
From June 1 to December 31, 2021, RSA’s contribution to NEP and Income before income taxes was $4,422 million and $377
million respectively, using a GBP/CAD exchange rate of 1.71681. On a pro-forma basis, for the year ended December 31, 2021, the
NEP and Income before income taxes would have been $7,569 million and $442 million respectively if RSA was consolidated from
January 1, 2021. The pro-forma basis was calculated using historical information without the Scandinavian operations, by applying
the Company’s accounting policies and assuming fair value adjustments that arose on acquisition would have been the same if the
acquisition occurred on January 1, 2021. The pro-forma amounts exclude acquisition costs and benefits from integration initiatives or
synergies and are not necessarily indicative of the results that would have resulted if the acquisition occurred on January 1, 2021, or
the results that may be obtained in the future.
The Company recorded acquisition costs of $90 million for the year ended December 31, 2021 ($42 million - December 31, 2020),
mainly related to professional fees and stamp duties related to the closing of the acquisition. For the year ended December 31, 2021,
the Company also incurred integration costs of $285 million. These costs are reported in the line Acquisition, integration, and
restructuring. Refer to Note 26 – Acquisition, integration and restructuring costs.
INTACT FINANCIAL CORPORATION 27
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
5.2 Significant accounting judgments, estimates and assumptions
Upon initial recognition, the acquiree’s assets and liabilities and the contingent consideration (if any) have been included in the
Consolidated balance sheets at fair value. Management determined the fair values using the methods described below. During the
measurement period following the acquisition, the changes in the estimates that relate to new information obtained about facts and
circumstances that existed as of the acquisition date, would have an impact on the amount of goodwill or gain on bargain purchase
recognized. Any other changes in the estimates would be recognized in income.
Customer relationships and distribution networks were determined using discounted cash flows with the key estimates and
assumptions as follows:
• Cash flow projections including estimated growth rates and profitability, synergies and contributory asset charges such as
capital required to operate.
• Discount rate is based on the weighted-average cost of capital by major geographical regions for comparable companies
with similar activities.
Trade names were determined using the relief-from royalty method, an income approach using a projection of DWP to which a royalty
rate is applied. The key estimates and assumptions are the growth rate, the useful life, the royalty rate and the discount rate.
Internally generated software was determined using the replacement cost method. The key estimates and assumptions used include
direct and indirect costs attributable to the development of the software, adjustment for obsolescence and assumptions on the useful
life of the assets.
The fair value at the time of the acquisition of the Company’s 50% interest in RSA’s Danish business was supported by the agreed
price with Tryg and a valuation based on the income approach.
28 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 6 – Investments
6.1 Classification of investments
Table 6.1 – Classification of investments
As at
December 31, 2021
Cash and cash equivalents
Short-term notes
Fixed income
Investment grade
Government
Corporate
Asset-backed1
Mortgage-backed
Agency2
Non-agency
Below investment grade Corporate
Non-rated
Debt securities
Investment grade
Retractable
Fixed-rate perpetual
Other perpetual
Preferred shares
Common shares
Investment property
Loans
December 31, 2020
Cash and cash equivalents
Short-term notes3
Fixed income
Investment grade
Government
Corporate
Asset-backed1
Mortgage-backed
Agency2
Non-agency
Below investment grade Corporate
Non-rated
Debt securities
Investment grade
Retractable
Fixed-rate perpetual
Other perpetual
Preferred shares
Common shares
Loans
Fair value
Classified
as FVTPL
Designated
as FVTPL
Amortized cost
Cash and cash
equivalents and
loans
Total
carrying
amount
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
634
-
648
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
-
17
-
-
3,860
3,690
202
215
298
9
-
8,274
-
-
-
-
1,831
-
-
10,105
-
-
3,134
2,968
76
281
329
4
-
6,792
-
-
-
-
1,357
-
8,149
2,276
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
930
3,206
917
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284
1,201
2,276
516
9,107
10,508
1,302
1,365
989
79
1,441
25,307
16
408
1,423
1,847
5,686
634
930
36,680
917
684
5,842
5,238
442
697
836
24
335
14,098
21
303
1,228
1,552
3,779
284
20,630
AFS
-
516
5,247
6,818
1,100
1,150
691
70
1,441
17,033
16
408
1,423
1,847
3,841
-
-
22,721
-
684
2,708
2,270
366
416
507
20
335
7,306
21
303
1,228
1,552
2,405
-
11,263
1 Credit card receivables and auto loans.
2 Publicly traded MBS, which carry the full faith and credit guarantee of the US Government or are guaranteed by a government sponsored entity.
3 Includes the invested proceeds of $600 million from the Series 9 and 10 medium-term notes issued on December 16, 2020 (refer to Note 20 – Debt
outstanding). These amounts were held in a segregated account with restricted use until the closing date of the RSA acquisition.
INTACT FINANCIAL CORPORATION 29
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The Company uses data from various rating agencies to rate debt securities and preferred shares. When there are two ratings for the
same instrument, the Company uses the lower of the two. When there are three ratings for the same instrument, the Company uses
the median. Debt securities with a rating equal to or above 'BBB-' are classified as investment grade. Preferred shares with a rating
equal to or above 'P3L' are classified as investment grade.
6.2 Carrying value of investments
Table 6.2 – Carrying value of investments
As at
December 31, 2021
Cash and cash equivalents
Debt securities
Preferred shares1
Common shares
Investment property
Loans
December 31, 2020
Cash and cash equivalents
Debt securities
Preferred shares1
Common shares
Loans
FVTPL
investments
Carrying
value
Amortized
cost
Unrealized
gains2
Unrealized
losses2
Other
investments
Carrying
value
Total
investments
Carrying
value
-
8,274
-
1,845
634
-
10,753
-
6,792
-
1,374
-
8,166
2,276
17,003
1,676
3,420
-
930
25,305
917
7,009
1,560
2,181
284
11,951
-
145
183
475
-
-
803
-
304
70
292
-
666
-
(115)
(12)
(54)
-
-
(181)
-
(7)
(78)
(68)
-
2,276
17,033
1,847
3,841
-
930
25,927
917
7,306
1,552
2,405
284
(153)
12,464
2,276
25,307
1,847
5,686
634
930
36,680
917
14,098
1,552
3,779
284
20,630
1 Includes unrealized gains (losses) on embedded derivatives of $(62) million as at December 31, 2021 ($(12) million as at December 31, 2020).
These derivatives were presented in Investments, with the related perpetual preferred shares, on the Consolidated balance sheets but their change
in fair value was reported in Net gains (losses) in Net income.
2 Foreign amounts are translated using the period-end exchange rate.
IFRS 9 – Financial Instruments
The Company is currently assessing the cash flow characteristics test (solely payments of principal and interest or “SPPI” test). Based
on its preliminary assessment, most of the debt securities would pass the SPPI test. The composition of debt securities may change
significantly by the time IFRS 9 is adopted, which is expected to be on January 1, 2023.The table below presents the fair value and
the change in fair value of financial assets that have contractual cash flows that qualify as SPPI and other assets.
Table 6.3 – SPPI and Other financial assets
As at December 31,
SPPI financial
assets
2021
Other financial
assets
Cash and cash equivalents
Debt securities
Preferred share
Common shares
Loans
Derivative financial assets
2,276
23,114
-
-
930
-
26,320
-
2,193
1,847
5,686
-
150
9,876
SPPI financial
assets
2020
Other financial
assets
917
13,551
-
-
284
-
14,752
-
547
1,552
3,779
-
166
6,044
Total
2,276
25,307
1,847
5,686
930
150
36,196
Total
917
14,098
1,552
3,779
284
166
20,796
The change in fair value of SPPI financial assets and other financial assets was $(497) million and $850 million for the year ended
December 31, 2021 ($472 million and $85 million - December 31, 2020) respectively.
30 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
6.3 Collateral
The following table summarizes the investment related collateral:
Table 6.4 – Collateral
As at December 31,
Collateral pledged
Collateral accepted
2021
789
4,560
2020
69
1,221
The Company has pledged financial assets as collateral for liabilities or contingent liabilities, mainly consisting of debt and cash and
cash equivalents. The terms and conditions of the collateral pledged are market standard in relation to letter of credit facilities,
derivative transactions and repurchase agreements.
The Company has accepted collateral mainly consisting of government securities. The terms and conditions of the collateral accepted
are market standard in relation to securities loaned, derivative transactions and reverse repurchase agreements. The collateral cannot
be sold or re-pledged externally by the Company unless the counterparty defaults on its financial obligations. The obligation to repay
the cash is included in Other liabilities and the corresponding receivable is recognized as an asset. Collateral accepted is mainly
related to securities loaned which as at December 31, 2021 had a fair value of $3,036 million ($1,054 million as at December 31,
2020). The related collateral accepted represents approximately 104% of the fair value of the securities loaned as at December 31,
2021 (105% as at as at December 31, 2020).
Note 7 – Financial liabilities related to investments
Table 7.1 – Financial liabilities related to investments
As at December 31,
Accounts payable to investment brokers on unsettled trades
Derivative financial liabilities (Table 8.2)
Equities sold short positions
2021
32
224
9
265
2020
43
38
8
89
INTACT FINANCIAL CORPORATION 31
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 8 – Derivative financial instruments
8.1 Types of derivatives used
Table 8.1 – Types of derivatives used
Derivatives Description
Objective
Forwards
Contractual obligations to exchange:
Currency
one currency for another at a predetermined
future date
Mitigate risk arising from foreign currency
fluctuations on:
•
foreign currency cash inflows and
outflows impacting the Company’s
operations
Reason for
holding the
instrument
Risk management
purposes
• on the Company’s net investment in
Book value hedge
foreign operations
•
foreign currency cash flows
related to the purchase price and the
Company’s net investment in foreign
operations as a result of the RSA
acquisition
Risk management
purposes
Modify or mitigate exposure to interest rate
fluctuations
Mitigate exposure to equity market
Mostly for risk
management
purposes
Risk management
purposes
Futures
Contractual obligations to buy or sell:
Interest rate
an interest rate sensitive financial instrument
at a specified price and a predetermined
future date
Equity
a specified amount of stocks, a basket of
stocks or an equity index at an agreed price
and a specified date
Swaps
Over-the-counter contracts:
Cross
currency
in which two counterparties exchange interest
and principal payments in two different
currencies
Mitigate risk arising from foreign currency
fluctuations on the Company’s net investment
in foreign operations
Book value hedge
Interest rate
in which two counterparties exchange a
stream of future interest payment for another,
based on a specified principal amount
Cross
currency
interest rate
in which two counterparties exchange a
stream of future interest payment for another,
based on a specified principal amount and in
two different currencies
Equity
in which two counterparties exchange a series
of cash flows based on a basket of stocks,
applied to a notional amount
Modify or mitigate exposure to interest rate
fluctuations
Fair value hedge
Modify or mitigate exposure to interest rate
and foreign currency fluctuations
Cash flow hedge
Mitigate exposure to equity market
fluctuations
Risk management
purposes
Credit default that transfer credit risk related to an
Modify exposure to credit risk
underlying financial instrument from one
counterparty to another
Inflation
that transfer inflation risk from one party to
another
Modify exposure to inflation risk
Risk management
purposes
Risk management
purposes
32 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
8.2 Fair value and notional amount of derivatives
Derivative financial assets are presented on the Consolidated balance sheets as part of Other assets and derivative financial liabilities
are presented as part of Financial liabilities related to investments.
Table 8.2 – Fair value and notional amount of derivatives
As at December 31,
Foreign currency contracts
Forwards
Cross currency swaps
Interest rate contracts
Futures
Swaps
Foreign currency and interest rate contracts
Cross currency interest rate swaps
Equity contracts
Swaps
Futures
Inflation contracts
Swaps
Held for risk management purposes
Designated as net investment hedges
Designated as cash flow hedges
Designated as fair value hedges
Not designated
Held for trading purposes
Term to maturity:
less than one year
from one to five years
over five years
2021
2020
Notional
amount
Fair value
Asset
Liability
Notional
amount
Fair value
Asset
Liability
5,695
604
889
93
142
1,819
428
205
9,875
4,127
367
1,019
4,230
9,743
132
9,875
9,435
108
332
9,875
34
42
-
-
3
-
-
71
150
17
9
49
75
150
-
150
60
-
-
15
11
81
-
57
10,328
266
1,841
-
-
1,348
427
-
224
14,210
42
9
17
156
224
-
224
2,447
-
-
11,628
14,075
135
14,210
12,312
1,898
-
14,210
154
12
-
-
-
-
-
-
166
123
-
-
43
166
-
166
23
-
-
-
-
15
-
-
38
-
-
-
38
38
-
38
8.3 Currency hedging in relation with the RSA acquisition
Purchase price hedges
In November 2020, in connection with the RSA acquisition, the Company entered into foreign currency forward contracts in order to
hedge the £3.0 billion ($5.1 billion) purchase price to exposures from fluctuations in the CAD/GBP and EUR/GBP currency pairs.
These derivatives have a notional of £2.7 billion ($4.6 billion) GBP/CAD and £0.3 billion ($0.5 billion) GBP/EUR, of which £2.4 billion
($4.1 billion) were contingent on the closing of the acquisition.
On January 18, 2021 (RSA’s shareholders approval date), the RSA acquisition was considered highly probable and the purchase
price hedge was designated as a cash flow hedge. From this date, the effective portion of changes in the fair value of GBP/CAD
derivatives with a notional value of £2.1 billion ($3.6 billion) was recognized in OCI and the ineffective portion was recognized in Net
gains (losses) in Net income. On closing, losses of $32 million ($28 million net of tax) was recognized in AOCI and was reclassified
as part of the purchase price consideration for RSA. Before January 18, 2021, these derivatives did not qualify as cash flow hedges.
As a result, the changes in the fair value were recognized in Net gains (losses) in Net income. These contracts were settled upon
closing of the acquisition.
Refer to Note 5.1 – Business combination for more details.
INTACT FINANCIAL CORPORATION 33
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Book value hedges
In November 2020, the Company also entered into foreign currency forward contracts for a notional of £700 million ($1.2 billion),
whereby it sells GBP for CAD, in order to reduce its book value exposure to the GBP. These derivatives represent economic hedges
and the changes in the fair value were recognized through Net income until closing of the transaction. At the time of closing, the
Company designated these forward contracts as a net investment hedge of its foreign operations in RSA. The effective portion of
changes in fair value was recognized in OCI and the ineffective portion was recognized in Net gains or losses in Net income.
The Company also entered into other foreign currency forward contracts for a net notional of £100 million ($171 million) CAD/GBP for
risk management purposes related to the RSA acquisition. These contracts were settled upon closing of the acquisition.
In September 2021, the Company hedged an additional £275 million ($470 million) using foreign currency forward contracts. The
Company also reduced its USD book value hedge by USD200 million.
Refer to Note 5.1 – Business combination for more details.
8.4 Hedge of an investment in associate held for sale
The Company hedged its exposure to the DKK relative to the CAD for the Danish business classified as an investment in associate
held for sale. The Company uses a USD denominated bank term loan together with cross-currency swaps equivalent to DKK 2.9
billion ($0.6 billion) (the “synthetic term loan”) and foreign currency forwards of DKK 1.4 billion ($0.3 billion) to manage its fair
value exposure. The synthetic term loan and the forwards were designated as hedging instruments in a fair value hedge and as a
result their gains or losses are recorded in Net gains or losses in Net income together with foreign exchange translation gains or
losses on the asset held for sale. On July 1, 2021, the transaction was considered highly probable and foreign currency forwards used
to hedge the remaining exposure to the selling price were designated as a cash flow hedge. The effective portion of changes in the
fair value of the hedging instrument was recognized in OCI and the ineffective portion was recognized in Net gains or losses in Net
income.
Refer to Note 19 – Asset held for sale for details.
34 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 9 – Fair value measurement
9.1 Categorization of fair values
Table 9.1 – Fair value hierarchy of financial assets, investment property and financial liabilities measured at fair value
As at
December 31, 2021
Short-term notes
Fixed income
Investment grade
Government
Corporate
Asset-backed
Mortgage-backed
Agency
Non-agency
Below investment grade corporate
Non-rated
Debt securities
Preferred shares1
Common shares
Investment property
Derivative financial assets (Table 8.2)
Total financial assets measured at fair value
Total financial liabilities measured at fair value (Table 7.1)
December 31, 2020
Short-term notes
Fixed income
Investment grade
Government
Corporate
Asset-backed
Mortgage-backed
Agency
Non-agency
Below investment grade Corporate
Non-rated
Debt securities
Preferred shares1
Common shares
Derivative financial assets (Table 8.2)
Total financial assets measured at fair value
Total financial liabilities measured at fair value (Table 7.1)
Level 1
Valued
using
quoted
(unadjusted)
market prices
Level 2
Valued
using models
(with
observable
inputs)
Level 3
Valued
using models
(without
observable
inputs)
516
-
3,115
-
-
-
-
-
-
3,631
1,844
5,471
-
-
10,946
9
459
2,541
-
-
-
-
-
-
3,000
1,552
3,751
-
8,303
8
5,992
10,508
1,302
1,365
986
79
-
20,232
3
-
-
150
20,385
224
255
3,301
5,238
442
697
836
24
-
10,763
-
-
166
10,929
38
-
-
-
-
-
3
-
1,441
1,444
-
215
634
-
2,293
-
-
-
-
-
-
-
-
335
335
-
28
-
363
-
Total
516
9,107
10,508
1,302
1,365
989
79
1,441
25,307
1,847
5,686
634
150
33,624
233
684
5,842
5,238
442
697
836
24
335
14,098
1,552
3,779
166
19,595
46
1 Includes perpetual preferred shares with call options amounting to $1,574 million as at December 31, 2021 ($1,373 million as at December 31,
2020). The fair value of the embedded derivatives component amounting to $139 million as at December 31, 2021 ($63 million as at December 31,
2020) was determined using a Level 3 methodology.
The fair value of loans was $929 million as at December 31, 2021 ($290 million as at December 31, 2020).
The carrying value of certain short-term financial instruments not measured at fair value is a reasonable approximation of their fair
value.
INTACT FINANCIAL CORPORATION 35
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
9.2
Reconciliation of fair values measurement of Level 3 financial assets and investment property
Table 9.2 – Reconciliation of fair value measurement of Level 3 financial assets and investment property
AFS
Classified as FVTPL
For the years ended
Equity Fixed income
Equity
December 31, 2021
Balance, beginning of the year
Business combination
Total gain (losses) recognized in:
Net income
OCI
Purchases
Disposals
Exchange rate differences
Balance, end of year
December 31, 2020
Balance, beginning of the year
Total gain (losses) recognized in:
Net income
OCI
Purchases
Disposals
Exchange rate differences
Balance, end of year
19
222
2
11
1
(43)
(2)
210
16
-
2
2
(1)
-
19
335
995
24
(3)
379
(287)
1
1,444
246
-
3
99
(10)
(3)
335
9
-
5
-
-
(9)
-
5
8
4
-
-
(3)
-
9
Investment
property
-
522
79
-
41
(4)
(4)
Total
363
1,739
110
8
421
(343)
(5)
634
2,293
-
-
-
-
-
-
-
270
4
5
101
(14)
(3)
363
Note 10 – Financial risk
The Company has a comprehensive risk management framework and internal control procedures designed to manage and monitor
various risks to protect the Company’s business, clients, shareholders and employees. The risk management programs aim to manage
risks that could materially impair the Company’s financial position, accept risks that contribute to sustainable earnings and growth and
disclose these risks in a full and complete manner.
Effective risk management consists of identifying, assessing, responding, monitoring, and reporting on all material risks that the
Company is exposed to in the course of its operations. To make sound business decisions, both strategically and operationally,
management must have continual direct access to the most timely and accurate information possible. Either directly or through its
committees, the Board of Directors ensures that the Company’s management has put appropriate risk management programs in
place. The Board of Directors, directly and through its Risk Management Committee, oversees the Company’s risk management
programs, procedures and controls and, in this regard, receives periodic reports from, among others, the Risk Management
Department through the Chief Risk Officer and internal auditors.
Table 10.1 – Financial risk
Market risk
Basis risk
Credit risk
Liquidity risk
Risk
definition
Risk that the fair value or future
cash flows of a financial
instrument or investment
property will fluctuate because
of changes in equity market
prices, interest rates or
spreads, foreign exchange
rates, property prices or
commodity market.
Risk that offsetting
investments in an economic
hedging strategy will not
experience price changes that
entirely offset each other.
Risk that counterparties
may not be able to meet
payment obligations
when they become due.
Risk that the Company
will encounter difficulty
in raising funds to
meet obligations
associated with
financial liabilities.
Reference Notes 10.1 and 10.2
Note 10.3
Note 10.4
Note 10.5
36 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
10.1 Market risk
Table 10.2 – Market risk
Equity price risk
Interest rate and credit spread risk Currency risk
Property price risk
Risk
definition
Risk of losses
arising from
changes in equity
market prices.
Risk that the fair value or future cash
flows of a financial instrument will
fluctuate because of changes in
interest rates or credit spreads.
Risk
exposure
Significant exposure
to price changes for
common shares and
preferred shares,
including pension
plan equities.
Significant exposure to changes in
interest rates from:
•
•
debt securities and preferred
shares;
defined benefit pension plan
obligations, net of related
debt securities; and
•
net claims liabilities.
Risk
management
Set forth limits in
terms of equity
exposure through
investment policies.
Through geographic
and economic
sector diversification
and, in some cases,
the use of
derivatives
Set forth limits in terms of interest rate
and credit spread duration through
investment policies.
Using interest-rate derivatives.
Changes in the discount rate applied
to the Company’s claims liabilities
offers a partial offset to the change in
price of interest sensitive assets.
Risk of losses arising from
changes in property prices.
Risk that the fair value
or future cash flows of
a financial instrument
will fluctuate because
of changes in foreign
exchange rates.
A portion of the
Company’s net
investment in foreign
operations.
Exposure to price changes
for property including
investment properties held
in the pension plans.
Investments
supporting the
Company’s Canadian
operations
denominated in
foreign currencies.
A portion of foreign
currency inflows and
outflows impacting the
Company’s
operations.
Set forth limits in
terms of currency
exposure through
investment policies.
Using foreign
currency derivatives.
Set forth limits in terms of
direct property exposure
through investment policies
Used to back the
Company’s long-tailed
claim liabilities.
The Operational Investment Committee and Compliance Review and Corporate Governance Committee regularly monitor and review
compliance, respectively, with the Company’s investment policies.
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Sensitivity analysis to market risk
a)
Sensitivity analysis is a risk management technique that assists management in ensuring that risks assumed remain within the
Company’s risk tolerance level. Sensitivity analysis involves varying a single factor to assess the impact that this would have on the
Company’s results and financial condition excluding any management action. Actual results can differ materially from these estimates
for a variety of reasons and therefore, these sensitivities should be considered as directional estimates.
Table 10.3 – Sensitivity analysis (after tax)
For the years ended
Equity price risk
Common share prices (10% decrease)1
Preferred share prices (5% decrease) 2
Property price risk (10% decrease)
Interest rate risk (100 basis point increase)
Debt securities3,4
Net claims liabilities
Defined benefit pension plan obligation, net of related debt
securities
Currency risk5
Strengthening of CAD by 10% vs all currencies
Net assets of foreign operations in:
USD
GBP
Currency derivatives related to RSA acquisition
Strengthening of GBP by 10% vs EUR
Currency derivatives related to RSA acquisition
December 31, 2021
December 31, 2020
Net income
OCI
Net income
27
19
(51)
(237)
378
-
10
8
-
-
(446)
(88)
(40)
(445)
-
11
(305)
(411)
-
11
12
-
(198)
200
-
6
-
-
-
(52)
OCI
(221)
(68)
-
(197)
-
130
(196)
-
(283)
-
1 Including the impact of common shares (net of any equity hedges, including the impact of any impairment) or investment property related to the
defined benefit pension plan..
2 Including the impact on related embedded derivatives.
3 Excludes the impact of debt securities related to the defined benefit pension plan.
4 Interest rate sensitivity is based on the fixed-income portfolio, which comprises approximately 45% of government-related securities and 55% of
corporate-related securities.
5 After giving effect to forward-exchange contracts.
The sensitivity analysis was prepared using the following assumptions:
Interest rates, equity prices, property prices and foreign currency move independently;
• Shifts in the yield curve are parallel;
•
• Credit, liquidity, spread and basis risks have not been considered;
•
Impact on the Company’s pension plans has been considered; and
• Risk reduction measures perform as expected, with no material basis risk and no counterparty defaults.
AFS debt or equity securities in an unrealized loss position, as reflected in AOCI, may be realized through sale in the future.
38 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
b)
Exposure to currency risk
Table 10.4 – Net foreign currency and translation exposure
As at December 31,
Exposure in CAD
Investments supporting the Company’s Canadian operations
Less: foreign-currency derivatives, notional amount
Consolidated net assets of foreign operations
Less: foreign-currency derivatives, notional amount
Other net assets denominated in foreign currency
Less: foreign-currency derivatives, notional amount3
USD1
2,499
(2,499)
-
2,636
-
2,636
161
-
161
2021
2020
GBP
DKK/EUR2
-
-
-
3,507
(1,337)
2,170
(60)
-
(60)
-
-
-
574
(328)
246
842
(1,093)
(251)
USD
2,198
(2,179)
19
2,304
(254)
2,050
48
-
48
Total net currency exposure
2,797
2,110
(5)
2,117
1 Includes the Company’s operations in the US and the Middle East.
2 The DKK and EUR exposures are aggregated as the DKK continues to be pegged closely to the EUR.
3 Includes the fair value and cash flow hedges of the Danish business classified as an investment in associated held for sale. Refer to Note 8.4- Hedge
of an investment in associate held for sale.
10.2 Interest risk
The following table presents the fair value and respective duration of the Company’s assets and liabilities measured at fair value, as
well as financial instruments that are sensitive to movements in interest rates.
Table 10.5 – Interest risk
As at December 31,
Investments:
Debt securities
Preferred shares
Net claims liabilities1
Defined benefit pension plans
Debt securities
Obligation1
2021
2020
Fair value
Duration
(in years)
Fair value
Duration
(in years)
25,307
1,847
20,793
19,502
18,569
3.46
2.20
2.33
20.7
17.7
14,098
1,552
11,399
2,054
3,151
3.57
2.45
2.46
18.4
18.8
1 For more details on duration by country, refer to Note 13 – Insurance risk and Table 30.1 – DB pension plan asset (liability) by country.
The Company manages the interest rate risk exposure of its investment portfolio in accordance with its investment policies.
Compliance with interest rate risk exposure ranges and targets established in these policies is monitored regularly.
10.3 Basis risk
The use of derivatives exposes the Company to several risks, including credit and market risks. The hedging of certain risks with
derivatives results in basis risk. The imperfect correlation between the hedging instrument and hedged item creates the potential for
excess gains or losses in a hedging strategy, thus adding risk to the position. The Company monitors the effectiveness of its economic
hedges on a regular basis. Basis risk is controlled by limits prescribed in the investment policy, which are monitored regularly.
10.4 Credit risk
The Company’s credit risk exposure is concentrated primarily in its debt securities and preferred shares and, to a lesser extent, in its
premiums receivable, reinsurance assets, and structured settlement agreements entered with various life insurance companies. The
Company is also subject to counterparty credit risk arising from reinsurance, over-the-counter derivatives, as well as securities lending
and borrowing transactions. A counterparty is any person or entity from which cash or other forms of consideration are expected to
extinguish a liability or obligation to the Company. These exposures and the Company’s risk management policy and practices used
to mitigate credit risk are explained below.
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
a)
Credit exposure
The table below presents the Company’s maximum exposure to credit risk without considering any collateral held or other credit
enhancements available to the Company to mitigate this risk. For on-balance sheet exposures, maximum exposure to credit risk is
defined as the carrying value of the asset.
Table 10.6 – Maximum exposure to credit risk
As at December 31,
Cash and cash equivalents
Debt securities
Preferred shares
Loans
Premiums receivable
Reinsurance assets
Other financial assets1
On-balance sheet credit risk exposure
Structured settlements
Off-balance sheet credit risk exposure
2021
2,276
25,307
1,847
930
7,838
5,616
1,755
45,569
1,859
1,859
2020
917
14,098
1,552
284
3,822
1,533
909
23,115
1,552
1,552
1 Mainly includes other receivables and recoverables, industry pools receivable, financial assets related to investments, restricted funds, reinsurance
receivable and accrued investment income.
Structured settlements
The Company has obligations to pay certain fixed amounts to claimants on a recurring basis and has purchased annuities from life
insurers to provide for those payments. If the life insurers are in default, the Company may have to assume a financial guarantee
obligation. Therefore, the net risk to the Company is any credit risk related to the life insurers. This credit risk is reduced since the
Company deals with registered life insurers. In addition, the credit risk is further mitigated by an industry compensation scheme which
would assume a significant majority of the remaining outstanding obligations in case a life insurer defaults.
Credit quality
b)
The Company’s risk management strategy is to invest in debt securities and preferred shares of high credit quality issuers and to limit
the amount of credit exposure with respect to any one issuer by imposing limits based upon credit quality. The Company’s investment
policy requires at least 97% of the public fixed income investments portfolio to be rated investment grade and at least 57% of preferred
shares portfolio to be rated P2 (low) or better. This credit quality restriction excludes indirect investments through debt funds. In the
case of funds, specific policy limits apply to manage the overall exposure to these investments. Management monitors subsequent
credit rating changes on a regular basis.
The following tables present the credit quality of the Company’s debt securities and preferred shares.
Table 10.7 – Credit quality of debt securities
As at December 31,
Debt securities
AAA
AA
A
BBB
Not rated
Table 10.8 – Credit quality of preferred shares
As at December 31,
P1
P2
P3
40 INTACT FINANCIAL CORPORATION
2021
28%
30%
23%
12%
7%
100%
2021
2%
75%
23%
100%
2020
38%
30%
21%
9%
2%
100%
2020
-
80%
20%
100%
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Credit risk concentration
Concentration of credit risk exists where several borrowers or counterparties are engaged in similar activities, are located in the same
geographic area or have comparable economic characteristics. Their ability to meet contractual obligations may be similarly affected
by changing economic, political or other conditions. The Company’s investments could be sensitive to changing conditions in specific
geographic regions or industries.
Investments
The Company has a significant concentration of its investments in the financial sector and in Canada. These risk concentrations are
closely monitored. To enhance sector diversification, the Company holds investment-grade non-financial US corporate bonds. The
recently acquired RSA investment portfolio helps diversify out of Canadian Financial issuers.
Table 10.9 – Investment breakdown by country of incorporation and by industry
As at December 31,
By country of incorporation
Canada
US
UK
Other (including Ireland)
By industry
Government
Financials
ABS and MBS
Energy
Other
2021
55%
19%
11%
15%
100%
26%
33%
10%
4%
27%
100%
2020
72%
27%
-
1%
100%
34%
27%
10%
5%
24%
100%
The Company's regulated subsidiaries are subject to limitations on issuer concentration that vary by jurisdiction; the Company ensures
continuous compliance with these regulations. The Company also monitors aggregate concentrations of credit risk by country of issuer
and by industry regardless of the asset class (see Note 14.4 – Risk management and counterparty credit risk). The Company applies
limits against that aggregate exposure, which are more conservative than OSFI’s limits. Investment portfolio diversification helps to
mitigate credit risk and is monitored against established guidelines with respect to exposure to individual issuers.
Most of the investment portfolio is invested in well established, active and liquid markets.
c)
Counterparty credit risk
Counterparty credit risk arises from reinsurance (see Note 14.4 – Risk management and counterparty credit risk), over-the-counter
derivatives, reverse repurchase agreements, securities lending and borrowing transactions.
Over-the-counter derivatives, as well as securities lending and borrowing transactions
Credit risk from over-the-counter derivative transactions reflects the potential for the counterparty to default on its contractual
obligations when one or more transactions have a positive market value to the Company. Therefore, derivative-related credit risk is
represented by the positive fair value of an over-the-counter instrument and is normally a small fraction of the contract’s notional
amount. In addition, the Company may be subject to wrong-way risk arising from certain derivative transactions. Wrong-way risk
occurs when exposure to a counterparty is adversely correlated with the credit quality of that counterparty.
Credit risk from securities lending and borrowing transactions arises when the counterparty can re-hypothecate or re-pledge the
collateral externally. Credit risk from securities borrowing is the potential for the counterparty to default when the value of the collateral
posted is higher than the value of the security borrowed.
INTACT FINANCIAL CORPORATION 41
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The Company subjects its derivative-related, as well as securities lending and borrowing credit risk to the same credit approval, limit
and monitoring standards that it uses for managing other transactions that create credit exposure. This includes evaluating the
creditworthiness of counterparties, and managing the size, diversification and maturity structure of the portfolio. Credit utilization for
all products is compared with established limits on a continual basis and is subject to a monthly review by the Operational Investment
Committee. The Company has adopted a policy whereby, upon signing the derivative contract, the counterparty is required to have a
minimum credit rating of ‘A-’ and an issuer credit spread below established thresholds or has a guarantee from a company rated ‘A-’
or better.
The Company uses netting clauses in master derivative agreements to reduce derivative-related credit exposure. Netting clauses in
master derivative agreements provide for a single net settlement of all financial instruments covered by the agreement in the event of
default. However, credit risk is reduced only to the extent that the Company’s financial obligations toward the counterparty to such an
agreement can be set off against obligations such counterparty has toward the Company. The overall exposure to credit risk that is
reduced through the netting clauses may change substantially following the reporting date as the exposure is affected by each
transaction subject to the agreement as well as by changes in underlying market rates and values.
The Company’s rigorous collateral management process is another significant credit mitigation tool used to manage counterparty
credit risk arising from over-the-counter derivative and securities lending and borrowing transactions. Most of the Company’s legal
agreements allow for daily collateral movement. Consequently, the Company regularly validates that the collateral that it pledges is
not too high and that mark-to-market provisions for derivatives are sufficient. Mark-to-market provisions provide the Company with
the right to request that the counterparty pay down or collateralize the current market value of its derivative positions when the value
exceeds a specified threshold amount.
The aggregate credit risk exposure was $189 million as at December 31, 2021 ($311 million as at December 31, 2020) and is the
sum of the replacement cost net of collateral plus an add-on amount for potential future credit exposure. The risk-weighted amount
represents the credit risk equivalent, weighted according to the creditworthiness of the counterparty.
10.5 Liquidity risk
The Company’s liquidity management is governed by establishing a prudent policy that identifies oversight responsibilities as well as
by setting limits and implementing effective techniques to monitor, measure and control exposure to liquidity risk. Given the nature of
the Company’s P&C insurance activities, cash flows may be volatile and unpredictable. The company uses internal liquidity metrics
to monitor and control liquidity risk within its insurance subsidiaries.
The Company’s liquidity needs are rigorously managed by matching asset and liability cash flows and by establishing forecasts for
cash inflows and outflows. The Company invests in various types of assets to match them to its liabilities. This method maps the
obligations towards insured clients to asset life and performance. The Company reviews the matching status on a quarterly basis. To
manage its cash flow requirements, a portion of the Company’s investments is maintained in short-term (less than one year) highly
liquid money market securities. A large portion of the investments are unencumbered and held in highly liquid federal and provincial
government debt to protect against any unanticipated large cash requirements. In addition, the Company also has an unsecured
committed credit facility (see Note 20.2 – Other financing).
42 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
a)
Investments and derivative financial assets by contractual maturity
Table 10.10 – Investments and derivative financial assets by contractual maturity
Less than 1
year
From 1 to
5 years
Over
5 years
No specific
maturity
As at December 31, 2021
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Derivative financial assets
As at December 31, 2020
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Loans
Derivative financial assets
2,276
2,709
-
-
-
44
5,029
151
5,180
917
2,005
-
-
12
2,934
166
3,100
Total
2,276
25,307
1,847
5,686
634
930
36,680
151
-
12,173
16
-
-
220
12,409
-
-
9,194
21
-
-
666
9,881
-
-
1,231
1,810
5,686
634
-
9,361
-
12,409
9,881
9,361
36,831
-
6,344
13
-
50
6,407
-
-
5,414
8
-
222
5,644
-
-
335
1,531
3,779
-
5,645
-
917
14,098
1,552
3,779
284
20,630
166
6,407
5,644
5,645
20,796
b)
Financial liabilities by contractual maturity
Table 10.11 – Financial liabilities by contractual maturity
As at December 31, 2021
Claims liabilities – undiscounted value1
Debt outstanding
Lease liabilities – undiscounted value2
Other financial liabilities
As at December 31, 2020
Claims liabilities – undiscounted value
Debt outstanding
Lease liabilities – undiscounted value2
Other financial liabilities
Less than
1 year
From 1 to
5 years
9,904
892
120
3,622
14,538
4,363
510
83
1,095
6,051
11,700
1,952
321
572
14,545
6,242
656
231
57
7,186
Over
No specific
maturity
5 years
2,504
2,385
284
24
5,197
1,765
1,875
211
27
3,878
Total
24,108
5,229
725
5,225
35,287
12,370
3,041
525
1,981
17,917
-
-
-
1,007
1,007
-
-
-
802
802
1 Excludes periodic payment orders.
2 Lease liabilities in Other Liabilities includes discounting of $87 million as at December 31, 2021 ($78 million as at December 31, 2020) (refer to Note
18.2 – Other liabilities).
The contractual maturity of claims liabilities is determined by estimating when claims liabilities will be settled. Unearned premiums
have been excluded because they do not constitute actual obligations.
The contractual maturity of lease liabilities excludes operational costs and variable lease payments. The Company has extension
options for its real estate leases. Such extensions were excluded from the measurement of lease liabilities as management concluded
that it is not reasonably certain that they will be exercised.
INTACT FINANCIAL CORPORATION 43
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 11 – Claims liabilities
On the Consolidated balance sheets, claims liabilities are reported gross of the reinsurers’ share, which is included in Reinsurance
assets. Changes in claims liabilities, net of reinsurance, are reported in Net claims incurred. At closing of the RSA acquisition, the
Company’s risk margin was reviewed to ensure risk margin assumptions reflects the benefit of additional diversification of insurance
risk across lines of businesses and geographic region.
11.1 Movements in claims liabilities
Table 11.1 – Movements in claims liabilities
For the years ended
December 31, 2021
Balance, beginning of year
Business combination and other (Note 5)1
Current year claims
Unfavourable (favourable) prior-year claims development
Increase (decrease) due to changes in discount rate (Note 11.2)
Total claims incurred
Claims paid
Exchange rate differences
Balance, end of year
December 31, 2020
Balance, beginning of year
Current year claims
Unfavourable (favourable) prior-year claims development
Increase (decrease) due to changes in discount rate (Note 11.2)
Total claims incurred
Claims paid
Exchange rate differences
Direct
Ceded
Net
12,780
11,679
10,606
(611)
(255)
9,740
(9,040)
(43)
25,116
11,846
6,888
86
356
7,330
(6,345)
(51)
1,381
3,087
864
(62)
(29)
773
(905)
(13)
4,323
1,300
279
127
41
447
(349)
(17)
11,399
8,592
9,742
(549)
(226)
8,967
(8,135)
(30)
20,793
10,546
6,609
(41)
315
6,883
(5,996)
(34)
11,399
Balance, end of year
1 Includes the net favourable impact on claims liabilities resulting from the purchase of adverse development coverage (see Note 14 – Reinsurance).
12,780
1,381
In relation to COVID-19, the Company incurred claims of $106 million for certain lines of business for the year ended
December 31, 2020.
11.2 Fair value of claims liabilities
The Company estimates that the fair value of its net claims liabilities approximates their carrying values.
Table 11.2 – Carrying value of claims liabilities
As at December 31,
Undiscounted value
Effect of time value of money
Risk margin
Periodic payment orders1
2021
2020
Direct
Ceded
Net
Direct
Ceded
Net
24,108
(742)
1,328
422
25,116
3,952
(95)
271
195
4,323
20,156
(647)
1,057
227
12,370
(264)
674
-
1,313
(31)
99
-
11,057
(233)
575
-
20,793
12,780
1,381
11,399
1 The net claims liabilities are net of the discount and risk margin of $332 million as at December 31, 2021.
Table 11.3 – Discount rate and duration of claims liabilities
2021
2020
For the years ended December 31,
Canada
US
Canada
US
Discount rate
Average duration (in years)
1 Includes the discount rate and average duration of periodic payment orders of 4.00% and 17.7 years as at December 31, 2021 respectively.
1.67%
2.2
0.85%
2.5
1.68%
2.3
1.13%
2.1
UK&I1
3.10%
2.5
44 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
11.3 Significant accounting judgments, estimates and assumptions
The Company establishes claims liabilities to cover the estimated liability for the payment of all losses, including LAE incurred with
respect to insurance contracts underwritten by the Company. The ultimate cost of claims liabilities is estimated by using a range of
standard actuarial claims projection techniques in accordance with generally accepted actuarial methods.
The main assumption underlying these techniques is that a company’s past claims development experience can be used to project
future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred
losses, average costs per claim (severity) and average number of claims (frequency) based on the observed development of earlier
years and expected loss ratios. Historical claims development is analyzed by accident year, by geographical area, as well as by
significant business line and claim type. Catastrophic events are separately addressed, either by being reserved at the face value of
loss adjuster estimates in the case of very large losses or separately projected to reflect their future development which might differ
from historical data in the case of catastrophic events. Expected claim cost inflation is also considered when estimating claims
liabilities.
Additional qualitative judgment is used to assess the extent to which past trends may not apply in the future to arrive at the estimated
ultimate cost of claims that present the likely outcome from the range of possible outcomes, considering the uncertainties involved
(“best estimate”). In relation to COVID-19, the Company applied actuarial standards to determine its Claims liabilities reserve as well
as judgment given the lack of historical data, using different scenarios and assumptions based on the information currently available.
As a result of the COVID-19 crisis, the claims liabilities may be subject to volatility from potential distortion in claims development
pattern and claim severity for certain lines of business. Actuaries are required to include margins in some assumptions to recognize
the uncertainty in establishing this best estimate, to allow for possible deterioration in experience and to provide greater comfort that
the actuarial liabilities are sufficient to pay future benefits.
The determination of the overall risk margin considers:
•
•
•
•
The level of uncertainty in the best estimate due to estimation error, variability of key inflation assumptions and possible
economic and legislative changes;
The volatility in our measurement of the time value of money (discounting) from variability of the financial markets;
The level of uncertainty in how reinsurers will react to claims from severe events; and
The volatility of each line of business and the diversification between the lines of business and geographic regions (referred
to as diversification benefit).
At a fixed probability of adequacy, the appropriate risk margin for two or more classes of business or for two or more geographic
locations combined is likely to be less than the sum of the risk margins for the individual classes. The level of diversification assumed
between classes considers industry analysis, historical experience and the judgement of experienced and qualified actuaries. The
risk margin assumption used reflects this diversification benefit.
11.4 Sensitivity analysis
The claims liabilities’ sensitivity to certain key assumptions is outlined below. It is not possible to quantify the sensitivity to certain
assumptions such as legislative changes or uncertainty in the estimation process. The analysis is performed for possible movements
in the assumptions with all other assumptions held constant, showing the impact on Net income. Movements in these assumptions
may be non-linear and may be correlated with one another.
Table 11.4 – Sensitivity analysis (claims liabilities net of reinsurance) – Impact on Net income
As at December 31,
Average claim costs (severity)
Average number of claims (frequency)
Discount rate
2021
Canada
UK&I1
(483)
(115)
210
(261)
(33)
84
US
(88)
(13)
34
2020
Canada
(344)
(80)
179
US
(71)
(10)
26
+5%
+5%
+1%
1 Excludes periodic payment orders. A change of +0.5% in the discount rate of periodic payment orders would increase Net income by $19 million as
at December 31, 2021.
A portion of the Company’s investments backing its claims liabilities has been voluntarily designated as FVTPL to reduce the volatility
caused by fluctuations in the value of underlying claims liabilities due to changes in discount rates.
INTACT FINANCIAL CORPORATION 45
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
11.5 Prior-year claims development
The claims development table below demonstrates the extent to which the original claim cost estimates in any one accident year has
subsequently developed favourably (lower than originally estimated) or unfavourably. This table illustrates the variability and inherent
uncertainty in estimating the claims estimate on a yearly basis. The ultimate claims cost for any accident year is not known until all
claims payments have been made. For property insurance, payout of claims liabilities generally occurs shortly after the occurrence of
the loss. For casualty (long-tailed) coverages, the loss may not be paid, or even reported, until well after the loss occurred. The
estimated ultimate claims payments at the end of each subsequent accident year demonstrate how the original estimate has been
revised over time.
The outstanding claims liabilities assumed and revised estimates resulting from a business combination are included in the claims
development table from the acquisition year. Prior years are adjusted to ensure comparability while avoiding the presentation of
development in pre-acquisition accident years. Future developments are presented from the acquisition year.
The following table presents the estimates of cumulative incurred claims, including IBNR, with subsequent developments during the
periods and together with cumulative payments to date.
Table 11.5 – Prior-year claims development – net
As at December 31, 2021
Total 2021
2020
2019
2018
2017
2016
2015
Accident year
2013
2014
2012 Earlier
Undiscounted claims
liabilities outstanding at
end of accident year
Revised estimates
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate
Claims paid to date
Net undiscounted claims
liabilities
Net claims undiscounted
– RSA
Discounting and risk
margin
Periodic payment orders1
Net claims liabilities
1 Refer to Table 11.2.
4,065 3,700 3,580 3,392 3,458 3,084 2,775 2,659 2,636 2,446
3,393 3,473 3,301 3,311 3,121 2,672 2,588 2,575 2,413
3,413 3,312 3,282 3,127 2,707 2,581 2,540 2,333
3,354 3,281 3,188 2,728 2,599 2,530 2,291
3,295 3,234 2,748 2,610 2,527 2,265
3,248 2,762 2,598 2,535 2,242
2,752 2,591 2,506 2,237
2,576 2,495 2,221
2,489 2,210
2,220
4,065 3,393 3,413 3,354 3,295 3,248 2,752 2,576 2,489 2,220
(1,118) (1,746) (2,072) (2,429) (2,651) (2,441) (2,383) (2,340) (2,118)
11,992 4,065 2,275 1,667 1,282
866
597
311
193
149
102
485
8,164 2,734 1,317 1,153
776
607
405
236
174
150
97
515
410
227
20,793
The original reserve estimates are evaluated quarterly for redundancy or deficiency. The evaluation is based on actual payments in
full or partial settlement of claims and current estimates of claims liabilities for claims still open or claims still unreported.
To eliminate the distortion resulting from changes in foreign currency rates, all amounts denominated in currencies other than the
CAD have been translated into CAD using the exchange rate in effect as at December 31, 2021.
11.6 Industry pools
The Company participates in several voluntary and mandatory industry pools in different jurisdictions as it operates in various
countries. The impact of these industry pools on the Consolidated financial statements may vary, as in some cases the Company
pays a levy to the pool and in other cases it may assume or cede risks.
46 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 12 – Unearned premiums
12.1 Movements in unearned premiums
Unearned premiums represent the portion of DPW that the Company has not yet earned as it represents insurance coverage to be
provided by the Company after the balance sheet date. There was no premium deficiency as at December 31, 2021 and 2020.
Table 12.1 – Movements in unearned premiums
For the years ended
December 31, 2021
Balance, beginning of year
Business combination (Note 5)
Premiums written
Premiums earned
Exchange rate differences
Balance, end of year
December 31, 2020
Balance, beginning of year
Premiums written
Premiums earned
Exchange rate differences
Balance, end of year
Direct
Ceded
Net
6,256
5,324
17,994
(17,866)
(5)
11,703
5,960
12,143
(11,828)
(19)
6,256
152
1,447
1,322
(1,628)
-
1,293
211
527
(587)
1
152
6,104
3,877
16,672
(16,238)
(5)
10,410
5,749
11,616
(11,241)
(20)
6,104
Note 13 – Insurance risk
The Company principally underwrites automobile, home, as well as commercial P&C contracts to individuals and businesses in the
Canadian, UK and US insurance market. Refer to Note 31 – Segment information for more details.
Most of the insurance risk to which the Company is exposed is of a short-tail nature. Policies generally cover a 12-month period. For
the average duration of claim liabilities, refer to Table 11.3 – Discount rate and duration of claims liabilities.
Insurance contract risk is the risk that a loss arises from the following reasons:
•
•
•
•
•
underwriting and pricing (Note 13.1);
fluctuation in the timing, frequency and severity of claims relative to expectations (Note 13.2);
large, unexpected losses arising from a single event such as a catastrophe (Note 13.3);
claims liability risk (Note 13.4); and
inadequate reinsurance protection (Note 14.4).
Insured events can occur at any time during the coverage period and can generate losses of variable amounts. An objective of the
Company is to ensure that sufficient claims liabilities are established to cover future insurance claim payments related to past insured
events. The Company’s success depends upon its ability to accurately assess the risk associated with the insurance contracts
underwritten by the Company. The Company establishes claims liabilities to cover the estimated liability for the payment of all losses,
including LAE incurred with respect to insurance contracts underwritten by the Company.
Claims liabilities are the Company’s best estimates of its expected ultimate cost of resolution and administration of claims. Expected
claim cost inflation is considered when estimating claims liabilities, thereby mitigating inflation risk. The composition of the Company’s
insurance risk, as well as the methods employed to mitigate risks, are described hereafter.
INTACT FINANCIAL CORPORATION 47
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
13.1 Underwriting and pricing risks
The insurance business is cyclical in nature whereby the industry generally reduces insurance rates following periods of increased
profitability, while it generally increases rates following periods of sustained loss. The Company’s profitability tends to follow this
cyclical market pattern and can also be affected by demand and competition. In addition, the Company’s underwriting performance is
at risk from a deterioration of the economy, unexpected cost inflation, inadequate segmentation, the misestimation of replacement
costs, and/or unclear wording in our contracts. The Company also manages emerging risks that may arise.
The Company has a Board approved risk appetite statement that includes guiding principles for risk taking and key risk metrics. These
metrics are monitored and reported on frequently to ensure underwriting risk remains within our tolerance.
a)
Concentration by countries and lines of business
Table 13.1 – Concentration by countries and lines of business
As at December 31,
By countries
Canada
UK&I
US
By lines of business
Personal auto - Canada
Personal property - Canada
Commercial lines - Canada
Personal lines - UK&I
Commercial lines - UK&I
Commercial lines - US
2021
2020
DPW
69%
20%
11%
100%
28%
18%
23%
8%
12%
11%
Net claims
liabilities
66%
26%
8%
100%
34%
6%
26%
4%
22%
8%
DPW
85%
-
15%
100%
36%
21%
28%
-
-
15%
Net claims
liabilities
86%
-
14%
100%
45%
6%
35%
-
-
14%
100%
100%
100%
100%
Risks associated with commercial lines and personal insurance contracts may vary in relation to the geographical area of the risk
insured by the Company. For instance, legislation for automobile insurance is in place at a provincial level in Canada and this creates
differences in the benefits provided among the provinces.
The Company’s exposure to concentration of insurance risk, in terms of type of risk and level of insured benefits, is mitigated by
careful selection and implementation of underwriting strategies, which is in turn largely achieved through diversification across industry
sectors and geographical areas. Diversification also reduces the uncertainty associated with the unfavourable development of claims
liabilities for both the Company’s Canadian, US and UK&I operations. The Company maintains Growth and Profitability Committees
responsible for balancing growth and profitability of its insurance business and ensuring it remains adequately compensated for the
risks that it underwrites.
The Enterprise Risk Committee monitors the Company’s overall risk profile, aiming for a balance between risk, return and capital and
determines policies concerning the Company’s risk management framework. Its mandate is to identify, measure and monitor risks, as
well as avoid risks that are outside of the Company’s risk tolerance level. Further, to minimize unforeseen risks, new products are
subject to an internal product and approval review process. The Company also uses reinsurance under its strategy for managing the
underwriting risk. The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and
available capacity, which can affect the Company’s ceded premium volume and profitability. Reinsurance companies exclude some
types of coverage from the contracts that the Company purchases from them or may alter the terms of such contracts from time to
time. These gaps in reinsurance protection expose the Company to greater risk and greater potential loss and could adversely affect
its ability to underwrite future business. Where the Company cannot successfully mitigate risk through reinsurance arrangements,
consideration is given to reducing premiums written to lower its risk.
48 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
13.2 Risk related to the timing, frequency and severity of claims
With the occurrence of claims being unforeseeable, the Company is exposed to the risk that the number and the severity of claims
could exceed the estimates.
Strict claim review policies are in place to assess all new and ongoing claims. Regular detailed reviews of claims handling procedures
and frequent investigations of possible fraudulent claims reduce the Company’s risk exposure. Further, the Company enforces a
policy of actively managing and promptly pursuing claims, to reduce its exposure to unpredictable future developments that could
negatively impact the business. The Company regularly reviews large losses and contentious matters to ensure that appropriate
claims liabilities are established and approved.
13.3 Catastrophe risk
Catastrophe risk is the risk of occurrence of a catastrophe defined as any one claim, or group of claims related to a single event such
as a natural disaster or any climatic, environmental, technological, political, or geopolitical risk. Catastrophes can have a significant
impact on the underwriting income of an insurer. Changing climate conditions may add to the unpredictability and frequency of natural
disasters and create additional uncertainty as to future trends and exposures.
Catastrophic events include natural disasters and unnatural events:
•
There are a wide variety of natural disasters including but not limited to earthquakes, hurricanes, windstorms, hailstorms,
rainstorms, ice storms, floods, solar storms, severe winter weather and wildfires.
• Unnatural catastrophe events include but are not limited to hostilities, terrorist acts, riots, explosions, crashes and
derailments, and wide scale cyber-attacks.
Despite the use of sophisticated models, the incidence and severity of catastrophic events are inherently unpredictable. The extent of
losses from a catastrophic event is a function of both the total amount of insured exposure in the area affected by the event and the
severity of the event.
The Company manages its exposure to catastrophe risk by imposing limits of insurance, deductibles, exclusions and strong
underwriting guidelines on contracts, as well as by using reinsurance arrangements. The placement of ceded reinsurance is almost
exclusively on an excess-of-loss basis (per event or per risk), but some proportional cessions are performed on specific portfolios.
Ceded reinsurance complies with regulatory guidelines. Retention limits for the excess-of-loss reinsurance vary by product line. See
Note 14.1 – Company’s reinsurance net retention and coverage limits by nature of risk.
13.4 Claims liability risk
The principal assumption underlying the claims liability estimates is that the Company’s future claims development will follow a similar
pattern to past claims development experience. Claims liabilities estimates are also based on various quantitative and qualitative
factors, including:
•
•
•
•
•
•
•
•
average claim costs, including claim handling costs (severity);
average number of claims by accident year (frequency);
trends in claim severity and frequency;
payment patterns;
inflation including social inflation;
other factors such as expected or in-force government pricing and coverage reforms, and level of insurance fraud;
discount rate; and
risk margin (see Note 11.3 for more details).
See Note 11.4 for the sensitivity analysis of claims liabilities to certain key assumptions.
Most or all the qualitative factors are not directly quantifiable, particularly on a prospective basis, and the effects of these and
unforeseen factors could negatively impact the Company’s ability to accurately assess the risk of insurance contracts that the
Company underwrites. There may also be significant lags between the occurrence of the insured event and the time it is reported to
the Company and additional lags between the time of reporting and final settlement of claims.
The Company refines its claims liabilities estimates on an ongoing basis as claims are reported and settled. Establishing an
appropriate level of claims liabilities is an inherently uncertain process. Reserving policies are overseen by the Company’s Reserve
Review Committee.
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 14 – Reinsurance
14.1 Company’s reinsurance net retention and coverage limits by nature of risk
In the ordinary course of business, the Company reinsures certain risks with other reinsurers to limit its maximum loss in the event of
catastrophic events or other significant losses. The Company has a corporate reinsurance program which covers single risk events
and multi-risk events and catastrophes. In 2021, RSA’s operations were covered by its own reinsurance program as described below.
The following table shows the Company’s reinsurance net retention and coverage limits by nature of risk in relation to its corporate
reinsurance program.
Table 14.1 – Company’s reinsurance net retention1 and coverage limits2 by nature of risk
For the years ended December 31,
2021
2020
Single risk events
Retentions in Canada:
on property policies
on liability policies
Retentions in the US (in USD):
on property policies
on liability policies
Multi-risk events and catastrophes
Retention
Coverage limits
1 Excluding reinstatement premiums, co-participations and tax impacts.
2 Excluding co-participations.
7.5
5 - 10
4
3
150
5,300
7.5
5 - 10
3
3
100
5,300
For certain special classes of business or types of risks, the retention for single risk events may be lower through specific treaties or
the use of facultative reinsurance. For multi-risk events and catastrophes, the Company retains participations averaging 9.2% as at
December 31, 2021 (10.2% as at December 31, 2020) on reinsurance layers between the retention and coverage limit. The coverage
limit prudently exceeds the Company's risk assessment of an earthquake in Western Canada at a 1-in-500-year return period.
Effective January 1, 2022, RSA is covered by the Company’s corporate reinsurance programs with certain reinsurance programs
being purchased separately by region based on the nature of risk. In addition, the Company increased its coverage limit for Canadian
events from $5.3 billion to $7.2 billion for multi-risk events and catastrophes and the retention from $150 million to $200 million for
Canadian events, reflecting the addition of RSA. The Company retains participations on reinsurance layers between the retention and
coverage limit averaging 2.8% for Canadian events, 3.0% for US events and 1.3% for UK events. The retention and coverage limit for
US events have been adjusted to reflect all exposure in the US. For UK events, the Company maintained the same retention and
coverage limit for 2022 and introduced a small amount of co-participation in the program.
The Company’s approach for setting limits in each country is consistent with prior years.
50 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
RSA
As at December 31, 2021, the newly acquired operations of the Company are covered by its own reinsurance program for single risk
events as well as multi-risk events and catastrophes. Under the property catastrophe reinsurance program, the retention and limit
vary based on the location of the loss occurrence. In addition, the Company also purchases dedicated reinsurance protection for
certain lines of business and territories. The following table shows the Company’s reinsurance net retention and coverage limits by
nature of risk and region.
Table 14.2 – RSA’s reinsurance net retention and coverage limits by nature of risk and region
As at December 31, 2021
Single property risk events
Retention
Multi-risk events and catastrophes
Retention
Coverage limit
Canada (CAD)
UK (GBP)
17
75
3,200
17
75
1,350
In 2021, large net retained property risk and catastrophe losses are subject to an annual aggregate loss treaty. Coverage under this
treaty is triggered once cumulative qualifying large losses exceed £160 million, subject to a limit of £125 million and Company retained
participation of 25%.
On July 27, 2021, the Company entered into a reinsurance contract pursuant to which a third-party reinsurer assumed 50% of negative
reserve development in excess of an agreed retention with respect to certain of RSA's UK&I and other claims liabilities for accident
years 2020 and prior. The maximum amount recoverable from the third-party reinsurer under the reinsurance contract is 50% of £400
million and is subject to certain exclusions and limitations including in relation to first party COVID-19 related claims. The transaction
closed on October 6, 2021, following regulatory approval and satisfaction of various closing conditions. The purchase of this adverse
development coverage has reduced the potential volatility in the Company's claims liabilities and resulted in a release of risk margin
in 2021. The net impact of the adverse development coverage, amounting to $71 million was reported in Acquisition, integration and
restructuring costs in Net income.
14.2 Components of reinsurance assets
Reinsurance assets include the reinsurers’ share of claims liabilities and unearned premiums.
Table 14.3 – Components of reinsurance assets
As at December 31,
Reinsurers’ share of claims liabilities (Note 11.1)
Reinsurers’ share of unearned premiums (Note 12.1)
14.3 Net recovery (expense) from reinsurance
Table 14.4 – Net recovery (expense) from reinsurance
For the years ended December 31,
Ceded earned premiums (Note 12.1)
Ceded claims incurred (Note 11.1)
Commissions earned on ceded reinsurance
2021
4,323
1,293
5,616
2021
(1,628)
773
102
(753)
2020
1,381
152
1,533
2020
(587)
447
90
(50)
14.4 Risk management and counterparty credit risk
The Company relies on reinsurance to manage underwriting risk. Under reinsurance programs, management considers that for a
contract to reduce exposure to risk, it must be structured to ensure that the reinsurer assumes significant insurance risk related to the
underlying reinsured risks and it is reasonably possible that the reinsurer may realize a significant loss from the reinsurance.
Although reinsurance makes the assuming reinsurer liable to the Company to the extent of the risk ceded, the Company is not relieved
of its primary liability to its policyholders as the direct insurer. There is no certainty that its reinsurers will pay all reinsurance claims
on a timely basis or at all. As a result, the Company bears credit risk with respect to its reinsurers on potential future recoverables and
collectability of balances due from reinsurers is important to the Company’s financial strength.
INTACT FINANCIAL CORPORATION 51
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The Company is selective with its reinsurers, placing reinsurance with only those reinsurers having a strong financial condition. The
Company’s placement of reinsurance is diversified such that it is not dependent on a single reinsurer and the Company’s operations
are not substantially dependent upon any single reinsurance contract. The Company also has a policy that limits potential exposure
to a single reinsurer. The Company monitors the financial strength of its reinsurers on a regular basis. Uncollectible amounts
historically have not been significant.
As at December 31, 2021 and 2020, the Company did not have significant concentration of credit risk with any single reinsurer.
Management concluded that the Company was not exposed to significant loss from reinsurers for potentially uncollectible reinsurance
as at December 31, 2021 and 2020.
The Company also has minimum rating requirements for its reinsurers. Substantially all reinsurers are required to have a minimum
credit rating of 'A-' at inception of the contract. The Company also requires that its contracts include a special termination and security
review clause allowing the Company to replace a reinsurer during the contract period should the reinsurer’s credit rating fall below the
level acceptable to the Company or for other reasons that might jeopardize the Company’s ability to continue doing business with
such reinsurer as intended at the time of entering into the reinsurance arrangement.
The following table shows the collateral in place to support amounts receivable and recoverable from unregistered reinsurers in
Canada, and primarily from unauthorized reinsurers in the US and captive reinsurers in the UK&I for which there is significant credit
risk. This collateral is held in support of policy liabilities and could be used should these reinsurers be unable to meet their obligations.
Table 14.5 – Collateral in place to support amounts receivable and recoverable from unregistered, unauthorized and captive reinsurers
For the years ended December 31,
Collateral consisting of cash, security agreements and
letters of credit
Policy liabilities supported by the above collateral
2021
2020
Canadian
operations
UK&I
operations
US
operations
Canadian
operations
US
operations
124
95
143
69
113
88
91
65
136
110
52 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 15 – Goodwill and intangible assets
15.1 Summary of goodwill and intangible assets
Table 15.1 – Reconciliation of the carrying value of goodwill and intangible assets.
Intangible assets
Goodwill
Distribution
networks
Customer
relationships
and trade
names
Internally
developed
software
Total
intangible
assets
Cost
Balance as at January 1, 2021
Business combination (Note 5)
Acquisitions and costs capitalized
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2021
Accumulated amortization
Balance as at January 1, 2021
Amortization expense
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2021
Net carrying value
Cost
Balance as at January 1, 2020
Business combination
Acquisitions and costs capitalized
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2020
Accumulated amortization
Balance as at January 1, 2020
Amortization expense
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2020
2,813
-
259
-
(6)
3,066
-
-
-
-
-
3,066
2,626
4
205
(2)
(20)
2,813
-
-
-
-
-
Net carrying value
2,813
2,051
1,365
-
(4)
(4)
3,408
(209)
(102)
-
2
(309)
3,099
2,072
-
-
-
(21)
2,051
(124)
(91)
-
6
(209)
1,842
560
352
120
-
(1)
1,031
(281)
(79)
-
-
(360)
671
483
-
109
(32)
-
560
(258)
(42)
19
-
(281)
279
740
379
241
(37)
(2)
1,321
(347)
(132)
23
1
(455)
866
633
-
108
-
(1)
740
(283)
(65)
-
1
(347)
393
3,351
2,096
361
(41)
(7)
5,760
(837)
(313)
23
3
(1,124)
4,636
3,188
-
217
(32)
(22)
3,351
(665)
(198)
19
7
(837)
2,514
Intangible assets under development amounted to $295 million as at December 31, 2021 ($88 million as at December 31, 2020).
These intangible assets are not subject to amortization but are tested for impairment on an annual basis.
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
15.2 Significant accounting judgments, estimates and assumptions
Allocation of goodwill and intangible assets with indefinite lives to the group of CGUs
a)
Goodwill and intangible assets with indefinite lives are allocated to CGUs, or groups of CGUs, that are expected to benefit from the
business combination in which they arose.
Table 15.2 – Allocation of goodwill and intangible assets with indefinite lives to the groups of CGUs
As at December 31,
Canada
US
Goodwill
Intangible assets
2021
2,168
898
3,066
2020
1,910
903
2,813
2021
829
8
837
2020
829
8
837
The RSA acquisition did not result in goodwill or intangible assets with indefinite lives (refer to Note 5 – Business combination).
Impairment testing of goodwill and intangible assets with indefinite lives
b)
The Company determines whether goodwill and intangible assets with indefinite useful lives (not subject to amortization) are impaired
at least annually and whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable at the
CGU or group of CGUs level.
The annual impairment tests for the groups of CGUs were performed as at June 30, 2021 and 2020.
The Canada and US groups of CGUs, which correspond to the Company’s operating segments level, were tested for impairment by
comparing their carrying value to their recoverable amount, which has been determined based on a value in use calculation using the
following key estimates and assumptions:
• Cash flow projections for the next three years are based on financial budgets approved by the Board of Directors and
determined using budgeted margins based on past performance and management expectations for the Canada and US
groups of CGUs and their industry.
• Cash flow projections beyond the three-year period are extrapolated using estimated growth rates, based mainly on the
Canadian and US inflation, as well as demographic or gross domestic product growth perspectives.
• Pre-tax discount rate is based on the weighted-average cost of capital for comparable companies whose activities are similar
•
to the Canada and US groups of CGUs.
In some cases, the Company uses the most recent detailed calculation of the recoverable amount made in a preceding year,
in the current period’s impairment test, but only if there are no significant changes to the CGU, the likelihood of impairment
is remote based on the analysis of current events and circumstances, and the most recent recoverable amount substantially
exceeds the carrying amount of the CGU. In 2021, the Company used the 2020 recoverable amount in its impairment test of
the Canada group of CGUs.
Table 15.3 – Key assumptions used (groups of CGUs)
Canada
US
Terminal growth rate
Pre-tax discount rate
2021
2.5%
3.9%
2020
2.5%
3.9%
2021
11.1%
11.5%
2020
11.1%
11.1%
No impairment loss on goodwill or intangible assets with indefinite lives has been recognized for these CGUs for the years ended
December 31, 2021 and 2020.
The key assumptions used to determine the recoverable amount of each group of CGUs were tested for sensitivity by applying a
reasonably possible change to those assumptions, with all other assumptions held constant. The results of the sensitivity analysis
would not have resulted in an impairment of the Canada and US groups of CGUs.
54 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 16 – Investments in associates and joint ventures
Table 16.1 – Movement in investments in associates and joint ventures
As at December 31,
Balance, beginning of year
Acquisitions (sales)
Dividends received
Share of profit (loss) recorded in:
net income
OCI
Balance, end of year
Of which:
associates
joint ventures
2021
811
(123)
(28)
87
13
760
378
382
2020
715
75
(27)
52
(4)
811
446
365
During 2021, there were no events or changes in circumstances that indicated that the carrying values of the Company’s investments
in associates and joint ventures, all of which are investments in private entities, may not be recoverable.
Note 17 – Property and equipment
17.1 Net carrying value of property and equipment
Table 17.1 – Net carrying value of property and equipment
As at December 31,
Right-of-use assets1
Furniture and equipment
Leasehold improvements
Land and buildings
2021
465
140
107
62
774
2020
349
82
57
32
520
1 Right-of-use assets mainly related to real estate for which additions for the year ended December 31, 2021 amounted to $48 million ($45 million -
December 31, 2020). Total additions to right-of-use assets related to business combination was $183 million for the year ended December 31,
2021.
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 18 – Other assets and other liabilities
18.1 Other assets
Table 18.1 – Components of other assets
As at December 31,
Pension plan in a surplus position
Financial assets related to investments
Reinsurance receivable
Other receivables and recoverables
Other investments
Industry pools receivable
Accrued investment income
Prepaids
Restricted funds
Premium and sale taxes receivable
Other
18.2 Other liabilities
Table 18.2 – Components of other liabilities
As at December 31,
Reinsurance payable
Commissions payable
Deposits received in connection with insurance contracts1
Lease liabilities
Account payables and accrued expenses
Premium and sale taxes payable
Accrued salaries and related compensation
Pension plans in a deficit position and unfunded plans
Industry pools payable
Other payable to broker
Other post-employment benefits and other post-retirement benefits
Provisions2
Deposits received from reinsurers
Contingent considerations3
Other payables and other liabilities
2021
1,027
500
400
294
282
219
174
161
73
58
143
3,331
2021
1,378
918
704
638
543
410
380
225
213
149
139
112
31
18
566
6,424
2020
-
230
137
165
121
168
83
114
86
44
53
1,201
2020
53
297
475
447
233
263
261
260
151
107
55
8
26
37
269
2,942
1 Unrestricted collateral held by the Company primarily in relation with the surety business.
2 Provisions were mainly related to the RSA acquisition and include restructuring provisions of $34 million as well as other provisions such as
litigations and lease dilapidations and refurbishments.
3 Recorded at fair value based on future profitability metrics, discounted using information as of the measurement date and classified in Level 3 of
the fair value hierarchy.
56 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 19 – Asset held for sale
On June 1, 2021, the Company acquired RSA and on the same day, the Company sold a portion of the Scandinavia operations to
Tryg for £4.2 billion ($7.2 billion).
On June 11, 2021, the Company announced that together with Tryg it had entered into a definitive agreement to sell the Danish
business to Alm. Brand for a total cash consideration of approximately DKK 12.6 billion ($2.6 billion). The Company will receive
50% of the proceeds which represents approximately DKK 6.3 billion ($1.3 billion). The transaction is expected to close in the first
half of 2022, subject to the receipt of the relevant approvals or clearances from regulatory and antitrust authorities, the completion of
Alm. Brand’s financing and the satisfaction or waiver of certain other conditions. The gain on sale will be recorded at the time of
closing.
As a result, the Company included the Scandinavian assets and liabilities as held for sale in its preliminary fair value of the assets
acquired and liabilities assumed as at the acquisition date. The portion sold to Tryg on the same day is no longer presented in the
consolidated balance sheets as at December 31, 2021 and the Company’s retained interest in the Danish business was classified as
an investment in associate held for sale. Refer to Note 5.1 – Business combination.
At initial recognition, the investment in associate held for sale was recorded at its fair value less cost to sell of DKK 4.3 billion ($0.9
billion) which was determined by allocating the total purchase price of the RSA acquisition.
The Company hedged its fair value exposure to foreign exchange risk and as a result gains and losses on foreign currency translation
on the asset held for sale and the hedging instrument were recognized in Net gains or losses in Net income. On July 1, 2021, the
transaction was considered highly probable and foreign currency forwards used to hedge the remaining exposure to the selling price
were designated as a cash flow hedge. The effective portion of changes in the fair value of the hedging instrument was recognized in
OCI and the ineffective portion was recognized in Net gains or losses in Net income. Refer to Note 8.4 – Hedge of an investment in
associate held for sale for details.
INTACT FINANCIAL CORPORATION 57
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 20 – Debt outstanding
20.1 New financing
Series 1
Subordinated
Notes
• On March 31, 2021, the Company completed an offering of $250 million principal amount of fixed-to-fixed
rate subordinated notes Series 1 (the “hybrid notes”), due March 31, 2081 with the option for the issuer to
redeem the hybrid notes every five years.
•
•
The hybrid notes bear interest at a fixed annual rate of 4.125% for the initial five years until March 31, 2026,
subsequently the interest rate will be reset on that date and on every fifth anniversary of such date until
maturity on March 26, 2081 at a fixed interest rate per annum equal to the Government of Canada Yield on
the business day prior to such interest date reset plus 3.196%. Interest is payable in semi-annual instalments
commencing on September 30, 2021.
The hybrid notes will be converted automatically into Non-cumulative Class A Series 10 preferred shares of
the Company upon certain bankruptcy or insolvency related events. The hybrid notes are direct unsecured
obligations and are subordinated to all senior indebtedness of the Company.
•
The net proceeds from this offering were used to partly finance the RSA acquisition.
Series
11, 12 & 13
Unsecured
Medium-Term
Notes
• On May 18, 2021, the Company completed a three-tranche offering of:
o
o
o
$375 million Series 11 unsecured medium-term notes, which bears interest at a fixed annual rate
of 1.207% until maturity on May 21, 2024, payable in semi-annual instalments commencing on
November 21, 2021;
$375 million Series 12 unsecured medium-term notes, which bears interest at a fixed annual rate
of 2.179% until maturity on May 18, 2028, payable in semi-annual instalments commencing on
November 18, 2021;
$250 million Series 13 unsecured medium-term notes, which bears interest at a fixed annual rate
of 3.765% until maturity on May 20, 2053, payable in semi-annual instalments commencing on
November 20, 2021.
•
The net proceeds from this offering were used to fund the early redemption of:
o RSA’s £350 million 2019 Senior notes on June 16, 2021;
o
o
the Company’s $300 million Series 4 unsecured medium-term notes on June 17, 2021; and
the early redemptions resulted in fees of $30 million, offset by the reversal of fair value adjustments
on acquisition of $27 million, which were reported in Finance costs.
Commercial
Paper
•
•
•
•
•
On October 7, 2021, the Company launched a Canadian commercial paper program, whereby it may issue
short-term promissory notes (“commercial paper”) up to an aggregate principal amount of $500 million.
The commercial paper will be issued with maturities of less than one year at varying interest or discount rates
depending on prevailing market rates.
The net proceeds will be used to finance the Company’s short-term liquidity needs.
In October 2021, the Company issued a total of $471 million in commercial paper at a weighted average rate
of 0.27%. The proceeds were used to repay the Company’s credit facility.
In December 2021, the Company repaid a total of $32 million of its commercial paper. The remaining balance
at the end of 2021 was $439 million at a weighted average rate of 0.28%.
20.2 Other financing
USD Term Loan
In 2021, the Company repaid USD85 million ($109 million) of its USD term loan.
58 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Term Loan and Medium-term notes in relation with the RSA acquisition
On November 18, 2020, the Company entered into a 24-month bank term loan facility agreement which was drawn upon closing of
the RSA acquisition for USD478 million ($577 million) at a rate of Libor plus 80bps.
On December 16, 2020, the Company completed an offering of $600 million principal amount of Series 9 and 10 unsecured medium-
term notes. The proceeds of these medium-term notes were held in a segregated account with the Company’s custodian and became
available at closing of the RSA acquisition.
Bridge financing facility in relation with the RSA acquisition
On November 18, 2020, the Company secured a bridge financing facility (“bridge facility”) to be used if alternative financing was not
available by closing of the acquisition. As at December 31, 2020, the amounts available under the bridge facility included a £341
million ($593 million) non-revolving equity bridge and a £47 million ($82 million) non-revolving bond bridge. In March 2021, with the
issuance of the subordinated notes as described above, the non-revolving bond bridge facility was cancelled, and the non-revolving
equity bridge facility was reduced to approximately £246 million ($426 million). In May 2021, with the issuances of the Series 11, 12
and 13 Medium-Term notes, the non-revolving equity bridge was also cancelled. Refer to Note 5.1 – Business combination for more
details.
Series 8 Unsecured Medium-term notes
On March 24, 2020, the Company completed an offering of $300 million principal amount of Series 8 unsecured medium-term notes
(the ‘’Notes’’). The Notes bear interest at a fixed annual rate of 3.691% until maturity on March 24, 2025, payable in semi-annual
instalments which commenced on September 24, 2020. The net proceeds from this offering of Notes have been used for general
corporate purposes.
Credit facility
The Company has an unsecured revolving term credit facility. On June 1, 2021, the credit facility was increased from $750 million to
$1.5 billion in order to provide incremental liquidity and the maturity was extended by 18 months, it now matures on May 20, 2026.
In 2021, there was $472 million drawn under the credit facility which was subsequently repaid in October 2021 using the proceeds
from the commercial paper issuance. As at December 31, 2021 and 2020, no balance was drawn under this credit facility.
Type:
Prime loans
Base rate (Canada) advances
Bankers’ acceptances
Libor advances
At a rate of:
Prime rate plus a margin
Base rate (Canada) plus a margin
Bankers’ acceptance rate plus a margin
Libor rate plus a margin
As part of the covenants of the loans under the credit facility, the Company is required to maintain certain financial ratios, which were
fully met as at December 31, 2021 and 2020.
20.3 Debt outstanding assumed from the RSA acquisition
2019 Senior notes – On June 17, 2021, the Company repaid £350 million principal amount of debt assumed ahead of the maturity
date which had a fair value of £364 million. Refer to Note 20.1 – New financing.
Guaranteed subordinated notes - The £400 million principal amount of bonds were issued on October 10, 2014 at a fixed rate of
5.13% and have a redemption date of October 10, 2045. The Company has the right to repay the notes on specific dates from October
10, 2025. If the bonds are not repaid at that time, the applicable interest rate would be reset at a rate of 3.852% plus the appropriate
benchmark gilt for a further five-year period. Upon closing of the acquisition, the bonds were remeasured at fair value of £455 million
using a quoted market price. On September 30, 2021, the Company redeemed £240 million principal amount of the notes ahead of
the maturity date using its credit facility. The redemption price was £275 million, and the notes had a carrying value of £271 million
reflecting fair value adjustments on acquisition. The net cost of £4 million ($7 million) was reported in Acquisition, integration and
restructuring costs.
Subordinated guaranteed US bonds – The USD9 million principal amount of bonds were issued in 1999 and have a redemption
date of October 15, 2029, and the rate of interest payable on the bonds is 8.95%. Upon closing of the acquisition, the bonds were
remeasured at fair value of USD13 million using a quoted market price.
The Guaranteed subordinated notes and Subordinated guaranteed US bonds are contractually subordinated to all other creditors
such that in the event of a winding up or of bankruptcy, they are able to be repaid only after the claims of all other creditors have been
met. The Company has the option to defer interest payment but has not exercised this right to date.
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
20.4 Summary of debt outstanding
Table 20.1 – Carrying value of debt outstanding
Maturity
date
Initial
term
(years)
Fixed
rate
Coupon
(payment)
Principal
amount
Carrying value (net of fees)
2021
2020
As at December 31,
Medium-term notes
Series 2
Series 3
Series 4
Series 5
Series 6
Series 7
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
2012 US senior notes
Term loans
USD term loan
USD term loan facility
(Note 20.2)
Subordinated notes
Guaranteed subordinated
notes in GBP (Note 20.3)
Subordinated guaranteed
US bonds (Note 20.3)
Commercial Paper
Credit facility
Other debt
Nov. 2039
July 2061
Aug. 2021
June 2042
Mar. 2026
June 2027
Mar. 2025
Dec. 2030
Dec. 2050
May 2024
May 2028
May 2053
30
50
10
30
10
10
5
10
30
3
7
32
6.40% May & Nov.
Jan. & July
6.20%
Feb. & Aug.
4.70%
5.16%
June & Dec.
3.77% Mar. & Sept.
2.85%
June & Dec.
3.69% Mar. & Sept.
June & Dec.
1.93%
2.95%
June & Dec.
1.21% May & Nov.
2.18% May & Nov.
3.77% May & Nov.
250
100
300
250
250
425
300
300
300
375
375
250
Nov. 2022
10
4.60% May & Nov.
USD275
Nov. 2022
Jun. 2023
1.5
2
USD80
USD478
Oct. 2045
31
5.13%
Oct.
£160
Oct. 2029
30
8.95%
Apr. & Oct.
USD9
Various
Total debt outstanding before hybrid subordinated notes
Hybrid subordinated notes
Series 1 (Note 20.1)
Total debt outstanding
Mar. 2081
60
4.13% Mar. & Sept.
250
248
99
-
249
249
423
299
298
298
374
373
248
352
101
600
307
16
439
-
9
4,982
247
5,229
248
99
300
249
249
423
298
298
298
-
-
-
358
210
-
-
-
-
-
11
3,041
-
3,041
The medium-term notes may be redeemed at the option of the issuer, in whole or in part at any time, at a redemption price equal to
the greater of the Government of Canada Yield at the date of redemption plus a margin or their par value.
Fair value of debt outstanding amounted to $5,552 million as at December 31, 2021 ($3,482 million as at December 31, 2020) and
was established using valuation data from a benchmark firm. As at December 31, 2021 and 2020, the Company was in compliance
with all debt covenants.
60 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
20.5 Movement in the Company’s debt outstanding
Table 20.2 – Movement in the Company’s debt outstanding
For the years ended December 31,
Balance, beginning of year
Business combination (Note 5)
Cash flows from financing activities
Proceeds from issuance of debt
Borrowing (repayment) on the credit facility and commercial paper, net
Repayment of debt
Exchange rate differences
Other
Balance, end of year
2021
3,041
1,421
1,815
439
(1,429)
26
(84)
5,229
2020
2,362
-
894
(165)
(47)
(10)
7
3,041
Note 21 – Common shares and preferred shares
21.1 Authorized
Authorized share capital consists of an unlimited number of common shares and Class A Shares.
21.2 New financing in relation with the RSA acquisition
Issuance of
common
shares
pursuant to
subscription
receipts
On June 1, 2021, concurrent to the closing of the RSA acquisition:
•
•
•
23.8 million private placement subscription receipts (“receipts”) were converted into 23.8 million common
shares. The Company had completed its offering of the receipts on November 25, 2020 with three Canadian
institutional investors at a price of $134.50 per receipt for gross proceeds of $3.2 billion. The related issuance
costs of $140 million ($104 million after tax) were accounted for as a reduction in common shares, resulting
in net proceeds of approximately $3.1 billion.
9,272,000 receipts were converted into 9,272,000 common shares. The Company had completed its offering
of the receipts on December 3, 2020 with a group of underwriters at a price of $134.50 per receipt for gross
proceeds of $1.25 billion. The related issuance costs of $47 million ($35 million after tax) were accounted for
as a reduction in common shares, resulting in net proceeds of approximately $1.2 billion.
The receipt holders received a dividend equivalent payment of $55 million which is equal to any common
share dividends declared by the Company from the date of their issuance to the closing of the acquisition.
Refer to Note 5.1 – Business combination for more details.
21.3 Other financing
On August 31, 2021, the Company announced that it did not intend to exercise its right to redeem the Company’s Non-cumulative
Rate Reset Class A Series 3 Preferred Shares (the “Series 3 Preferred Shares”) or the Non-cumulative Floating Rate Class A Series
4 Preferred Shares (the "Series 4 Preferred Shares") on September 30, 2021. Holders of Series 3 and Series 4 Preferred shares
could elect to convert their shares into Series 4 and Series 3 shares respectively. As a result of the conversion, less than 1,000,000
Series 4 Preferred Shares remained outstanding therefore, they were automatically converted into Series 3 Preferred Shares on a
one-to-one basis, on September 30, 2021 and were subsequently delisted on the same day.
On February 18, 2020, the Company completed a Class A Series 9 offering of preferred shares (the “Series 9 Preferred Shares”) by
issuing and selling 6,000,000 Series 9 Preferred Shares, at a price of $25.00 per share, for aggregate gross proceeds of $150 million.
Share issuance costs of $4 million ($3 million after tax), were accounted for as a reduction in preferred shares on the Consolidated
balance sheets. On or after March 31, 2025, the Company may redeem, in whole or in part, at its option, the Series 9 Preferred
Shares, subject to certain conditions.
INTACT FINANCIAL CORPORATION 61
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
21.4 Issued and outstanding
Table 21.1 – Issued and outstanding shares
As at December 31,
Common shares
Preferred shares - Class A Shares
Series 1
Series 3
Series 4
Series 5
Series 6
Series 7
Series 9
Total Class A
2021
2020
Number of
shares
Amount
(in millions)
Number of
shares
Amount
(in millions)
176,081,958
7,576
143,018,134
3,265
10,000,000
10,000,000
-
6,000,000
6,000,000
10,000,000
6,000,000
48,000,000
244
245
-
147
147
245
147
10,000,000
8,405,004
1,594,996
6,000,000
6,000,000
10,000,000
6,000,000
244
206
39
147
147
245
147
1,175
48,000,000
1,175
Issued and outstanding Class A shares rank in priority to common shares with regards to payment of dividends.
Table 21.2 – Reconciliation of number of shares outstanding
As at December 31,
Balance, beginning of year
Issued
Balance, end of year
21.5 Dividends declared and paid per share
Table 21.3 – Dividends declared and paid per share (in dollars)
For the years ended December 31,
Common shares
Preferred shares
Series 1
Series 3
Series 4
Series 5
Series 6
Series 7
Series 9
Common shares
Preferred shares
(in shares)
2021
Class A shares (in shares)
2020
2021
2020
143,018,134
33,063,824
143,018,134
-
48,000,000
-
42,000,000
6,000,000
176,081,958
143,018,134
48,000,000
48,000,000
2021
3.40
0.85
0.84
0.52
1.30
1.33
1.23
1.35
2020
3.32
0.85
0.83
0.89
1.30
1.33
1.23
1.17
62 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The holders of record of the Company’s preferred shares are entitled to receive non-cumulative preferential cash dividends on a
quarterly basis, as and when declared by the Board of Directors of the Company.
• Series 1 Preferred Shares – The initial fixed-rate period ending on December 31, 2017 was based on an annual rate of
4.20%. The dividend rate that will prevail from and including December 31, 2017 to but excluding December 31, 2022 is
3.396%. Every five years thereafter, the dividend rate will reset at a rate equal to the five-year Government of Canada bond
yield plus 1.72%.
• Series 3 Preferred Shares – The annual dividend rate for the five-year period from and including September 30, 2021 to
but excluding September 30, 2026 is 3.457%.
• Series 4 Preferred Shares – These shares were delisted on September 30, 2021, refer to Note 21.3 above.
• Series 5 Preferred Shares – The annual dividend rate is 5.20% and is not subject to a rate reset.
• Series 6 Preferred Shares – The annual dividend rate is 5.30% and is not subject to a rate reset.
• Series 7 Preferred Shares – The annual dividend rate until June 30, 2023 is 4.90%, the dividend rate will be reset at this
time and every five years thereafter.
• Series 9 Preferred Shares – The annual dividend rate is 5.40% and is not subject to a rate reset. The initial dividend paid
on June 30, 2020 amounted to $0.4906 per share.
INTACT FINANCIAL CORPORATION 63
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 22 – Non-controlling interests
22.1 Non-controlling interests
As a result of the RSA acquisition, the Company recognized NCI of $1,101 million in its Consolidated balance sheets on acquisition.
Refer to Note 5.1 – Business combination for more details.
The NCI of the Company includes the following:
Table 22.1 – Non-controlling interests recognized in the consolidated balance sheet
As at December 31, 2021
Principal
place of
business
NCI
shares %
NCI in
subsidiaries
NCI
Net income
NCI
Dividends3
Ownership interest in a subsidiary
Royal & Sun Alliance Insurance (Middle East) BSC (c)1 Middle East
50
314
(6)
-
Equity instruments issued by a subsidiary
RSA Insurance Group plc2
UK
n/a
Tier 1 notes
Preferred shares
510
285
1,109
19
8
21
(19)
(8)
(27)
1 This entity owns 50% of the ordinary share capital of Al Alamiya for Cooperative Insurance Company, a company operating in the Kingdom of Saudi
Arabia and 52.5% of Al Ahlia Insurance Company SAOG, a company operating in the Sultanate of Oman. Its NCI in these two subsidiaries was
$117 million as at December 31, 2021.
2 Related to the Tier 1 notes and Preferred shares issued by a subsidiary of the Company, as a result presented as NCI in the consolidated balance
sheet. Refer to Note 22.2 and 22.3 for more details.
3 For the period from the RSA acquisition on June 1 to December 31, 2021.
Upon closing of the RSA acquisition, the Company elected to measure the NCI in Royal & Sun Alliance Insurance (Middle East) BSC
(c) using the proportionate share method, which corresponds to the proportionate share of the value of the net identifiable assets
acquired.
22.2 Tier 1 notes issued by RSA
On March 27, 2017, RSA issued two floating rate Restricted notes (the “notes”) totalling $509 million in aggregate size and with a
blended coupon of 4.7%:
• Swedish Krona, 2,500 million at 3-month Stibor +525bps (equivalent to 4.8% coupon on issue)
• Danish Krone 650 million at 3-month Cibor +485bps (equivalent to 4.6% coupon on issue)
Interest on the notes is due and payable only at the sole and absolute discretion of the Company, subject to certain additional
restrictions and is non-cumulative. The notes are redeemable at the option of the Company in whole on the fifth anniversary of the
issue date, or any interest payment date thereafter or in the event of certain changes in the tax, regulatory or ratings treatments of the
notes. Any redemption is subject to permission of the relevant regulator. The notes convert into common shares of the Company, at
a pre-determined price if certain solvency capital requirements are breached, or in the event of a winding up occurring earlier.
Upon closing of the RSA acquisition, the Tier 1 notes were remeasured at fair value of $510 million (£298 million) using average
quotes obtained from dealer banks.
22.3 Preferred shares issued by RSA
The Company assumed preferred shares issued by RSA which have a nominal value of £1 each and are not redeemable, they have
preferential rights over the holders of RSA’s ordinary shares in respects of dividends and are entitled to a cumulative preferential
dividend of 7.375% per annum in semi-annual installments subject to approval by the Board. As at December 31, 2021, shares issued
and fully paid to preferred shareholders were 125,000,000.
Upon closing of the RSA acquisition, preferred shares were remeasured at fair value of $285 million (£166 million) using a quoted
market price.
64 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 23 – Capital management
23.1 Capital management objectives
Capital management is a vital part of the financial management of the Company and is aligned with its strategy and business plan.
Capital is managed on a group basis as well as individually for each operating subsidiary.
The Company’s objectives when managing capital consist of:
• maximizing long-term shareholder value by optimizing capital used to operate and grow the Company; and
• maintaining strong regulatory capital levels, to ensure policyholders are well protected and the probability of breaching
regulatory minimum requirements is very low.
The Company seeks to maintain adequate capital levels to ensure the probability of breaching the regulatory minimum requirements
is very low. Such levels may vary over time depending on the Company’s evaluation of risks and their potential impact on capital. The
Company also keeps higher levels of capital margin when it foresees growth or actionable opportunities in the near term. Furthermore,
the Company may return capital to shareholders through annual dividend increases and, when appropriate, through share buybacks.
Any deployment of capital is executed within the context of the stated capital management objectives and only after careful
consideration of the impact on the Company’s risk metrics.
23.2 Group capital position
Capital management at a group level focuses on optimizing overall capital within the various subsidiaries and ensuring there are
sufficient liquid resources to support regulatory capital requirements, debt obligations, the payment of shareholder dividends,
acquisitions and other business purposes.
The capital strength of the group is measured by the Total Capital Margin. Total Capital Margin includes capital in excess of the
internal CALs for insurance entities in Canadian, US, UK and other internationally regulated jurisdictions and the funds held in non-
regulated entities less any ancillary own funds committed by the Company. CALs represent the thresholds below which regulator
notification is required together with a company action plan to restore capital levels. These thresholds are reviewed annually as part
of risk management practices.
23.3 Regulatory capital
The amount of capital in any particular company or country depends upon the Company’s internal assessment of capital adequacy in
the context of its risk profile and strategic plans, as well as local regulatory requirements. The Company’s objective is to maintain the
capitalization of its regulated operating subsidiaries above the relevant minimum regulatory capital requirements in the jurisdictions in
which they operate (referred to as regulator supervisory minimum levels).
Regulatory capital guidelines change from time to time and may impact the Company’s capital levels. The Company carefully monitors
all changes, actual or proposed.
As at December 31, 2021 and 2020, all the Company’s regulated P&C insurance subsidiaries were well capitalized on an individual
basis.
INTACT FINANCIAL CORPORATION 65
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Canada
•
The Company’s federally chartered Canadian P&C insurance subsidiaries are subject to the regulatory capital
requirements defined by OSFI and the Insurance Companies Act, while its Québec provincially chartered
subsidiaries are subject to the requirements of the AMF and the Act Respecting Insurance.
•
Federal and Québec regulated P&C insurers are required, at a minimum, to maintain a MCT ratio of 100%.
• OSFI and the AMF have also established a regulator supervisory target capital ratio of 150%, which provides a
cushion above the minimum requirement.
• RSA’s UK&I operations are subject to regulation and supervision by the Prudential Regulation Authority (“PRA”),
as well as other regulators at a subsidiary level.
UK
• UK&I operations use an internal model compliant with the Solvency II regime enacted in the UK and approved by
•
•
the PRA to calculate the SCR.
The coverage ratio represents total Eligible Own Funds over the SCR as determined by the internal model.
The Company’s US insurance operations are subject to regulation and supervision in each of the states where they
are domiciled and licensed to conduct business.
US
• State insurance departments have established the insurer solvency laws and regulatory infrastructure to maintain
accredited status with the National Association of Insurance Commissioners ("NAIC").
• A key solvency driven NAIC accreditation requirement is a state's adoption of RBC requirements.
Annually, the Company performs Capital Adequacy Testing to ensure that the Company has sufficient capital to withstand significant
adverse event scenarios. These scenarios are reviewed each year to ensure appropriate risks are included in the testing process.
The 2021 results indicated that the Company’s capital position is strong. In addition, the target, actual and forecasted capital position
of the Company is subject to ongoing monitoring by management using stress and scenario analysis to ensure its adequacy.
Note 24 – Net investment income
Table 24.1 – Net investment income
For the years ended December 31,
Interest income from:
debt securities
designated or classified as FVTPL
classified as AFS
loans and cash and cash equivalents
Interest income
Dividend income (expense) from:
common shares, net
designated or classified as FVTPL
classified as AFS
preferred shares classified as AFS
equities sold short positions
other investments
Dividend income
Investment property rental income
Total investment income
Expenses
66 INTACT FINANCIAL CORPORATION
2021
2020
181
212
33
426
85
125
86
-
1
297
17
740
(34)
706
177
158
23
358
70
96
76
(1)
1
242
-
600
(23)
577
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 25 – Net gains (losses)
25.1 Net gains (losses)
Table 25.1 – Net gains (losses)
For the years ended December 31,
Portfolios
Net gains (losses) from:
financial instruments:
designated as FVTPL
classified as FVTPL
classified as AFS1
derivatives2:
swap agreements
forwards and futures
Embedded derivatives1
Investment property
Net foreign currency gains (losses)
Impairment losses on investments1
Currency derivative hedges related to the
RSA acquisition (see Note 8.3):
Purchase price3
Book value
Gain related to an investment in associate1
Other gains (losses)4
Fixed
Income
2021
Equity and
property
Total
Fixed
Income
Equity
Total
2020
(267)
-
-
(267)
-
-
-
-
-
10
(7)
(264)
458
6
381
845
(494)
(137)
(631)
(96)
79
-
(85)
112
191
6
381
578
(494)
(137)
(631)
(96)
79
10
(92)
(152)
(71)
36
273
163
249
237
-
35
272
-
(2)
(2)
-
-
(1)
-
269
(140)
(5)
102
(43)
85
(34)
51
(14)
-
11
(121)
(116)
97
(5)
137
229
85
(36)
49
(14)
-
10
(121)
153
41
(22)
-
10
182
1 Includes a net gain of $66 million related to a venture investment recorded in 2021, comprised of a gain of $273 million mainly related to the disposal
of an investment in associate in exchange for its publicly issued common shares, offset by $207 million of losses of which $134 million were mainly
due to the sale of shares and $73 million were due to impairment losses.
2 Excluding foreign currency contracts, which are reported in the line net foreign currency gains (losses).
3 Including the changes in fair value related to the ineffective portion of the hedge and hedging premium associated with deal contingent forwards.
4 Includes an unrealized gain of $68 million recorded in 2021 related to certain venture investments which were previously measured at cost and
remeasured at fair value due to the availability of new information. The remaining amount recorded in 2021 is mainly related to realized gains on
broker transactions.
25.2 Significant accounting judgments, estimates and assumptions
The Company determines, at each balance sheet date, whether there is objective evidence that financial assets, other than those
classified or designated as FVTPL, are impaired. Considerations which form the basis of these objective evidence judgments include
a significant or prolonged decline in fair value, a loss event that has occurred which has impaired the expected cash flows, as well as
other considerations such as liquidity and credit risk. See Table 2.4 - Objective evidence of impairment for equity impairment model.
For common shares in an unrealized loss position of 50% or more (“significant”) as at March 31, 2020, the Company considered
additional factors before concluding to an evidence of impairment, given the unprecedented volatility and uncertainty in the worldwide
financial markets in March 2020 as a result of the COVID-19 pandemic. Additional factors reviewed included publicly announced
dividend reductions and average stock performance in March as well as the review of sector and specific securities. Since the second
quarter of 2020, financial markets and volatility have stabilized. As a result, the Company applied its usual quantitative impairment
model policy.
INTACT FINANCIAL CORPORATION 67
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 26 – Acquisition, integration and restructuring costs
26.1 Acquisition, integration and restructuring costs
Acquisition costs include professional fees and stamp duties related to the closing of an acquisition. Integration costs include
restructuring costs related to an acquisition such as severances, retention bonuses and system integration, the initial net impact of a
reinsurance coverage for the purpose of an acquisition as well as changes in the fair value of the contingent considerations.
Restructuring and other costs include restructuring costs not related to an acquisition and expenses related to the implementation of
significant new accounting standards.
Table 26.1 – Acquisition, integration and restructuring costs
For the years ended December 31,
Acquisition costs
Integration costs1
Restructuring and other costs
2021
90
285
54
429
2020
42
55
18
115
1 Includes the net impact of $71 million recorded in 2021 related to the purchase of adverse development coverage (see Note 14 – Reinsurance).
Note 27 – Income taxes
27.1 Income tax expense recorded in Net income
Table 27.1 – Components of income tax expense recorded in Net income
For the years ended December 31,
Current income tax expense (benefit)
Current year
Adjustments to prior years
Deferred income tax expense (benefit)
Origination and reversal of temporary differences
Adjustments related to the US Corporate Tax reform1
Adjustments to prior years
2021
2020
496
(9)
(8)
-
1
480
322
1
(58)
14
(2)
277
1 Includes a current tax expense of $14 million recorded in 2020 related to US corporate tax changes which limit tax deductions for interest payable
on certain debt in a US subsidiary. The rules are applicable retroactive to January 1, 2019.
27.2 Effective income tax rate
The effective income tax rates are different from the combined Canadian federal and provincial statutory income tax rates. The
Consolidated statements of comprehensive income contain items that are non-taxable or non-deductible for income tax purposes,
which cause the income tax expense to differ from what it would have been if based on statutory tax rates. The following table presents
the reconciliation of the effective income tax rate to the income tax expense calculated at statutory tax rates.
Table 27.2 – Effective income tax rate reconciliation
For the years ended December 31,
Statutory tax rate
Increase (decrease) in income tax rates resulting from:
non-taxable gain on bargain purchase
non-deductible losses (non-taxable gains)
non-taxable investment income
non-deductible losses (non-taxable income) from subsidiaries
change in unrecognized deferred income taxes
tax rate differential of subsidiaries, foreign entities and associates
adjustments related to the US Corporate Tax reform1
non-deductible expenses
other
Effective income tax rate
1 See Note 27.1 above for details.
68 INTACT FINANCIAL CORPORATION
2021
25.9%
(2.1)%
(1.5)%
(2.3)%
(0.9)%
(0.9)%
(0.9)%
0.0%
1.0%
0.4%
18.7%
2020
26.2%
-
(1.3)%
(4.5)%
(1.0)%
(0.2)%
(0.2)%
1.1%
0.6%
(0.3)%
20.4%
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
27.3 Significant accounting judgments, estimates and assumptions
Management exercises judgment in estimating the provision for income taxes. The Company is subject to income tax law in various
jurisdictions where it operates. Various tax laws are potentially subject to different interpretations by the taxpayer and the relevant tax
authority. To the extent that the Company’s interpretations of tax laws differ from those of tax authorities or that the timing of realization
of deferred tax assets is not as expected, the provision for income taxes may increase or decrease in future periods to reflect actual
experience.
27.4 Components of deferred tax assets and liabilities
Table 27.3 – Components of deferred tax assets and liabilities
As at December 31,
Net claims liabilities
Deferred acquisition costs
Accrued liabilities
Losses available for carry forward
DB pension plans
Financing costs
Other assets
Deferred tax assets
Intangible assets
Property and equipment
Investments
Other liabilities
Deferred tax liabilities
Net deferred tax asset (liability) / expense (benefit)
Consolidated
balance sheets
Asset (liability)
Consolidated statements
of comprehensive income
Expense (benefit)
2021
2020
2021
2020
100
64
336
197
32
54
2
785
(793)
(32)
(70)
(4)
(899)
(114)
134
34
124
139
71
6
2
510
(460)
(132)
(12)
(6)
(610)
(100)
67
(7)
(40)
26
66
(12)
(3)
97
(41)
(8)
(2)
(1)
(52)
45
(25)
(1)
-
39
4
-
2
19
(61)
7
6
(2)
(50)
(31)
The Company believes that it is probable that it will generate sufficient taxable income in the future to realize the above deferred tax
assets.
The Company recognizes a deferred tax liability on all temporary differences associated with investments in subsidiaries and
associates unless it can control the timing of the reversal of these differences, and it is probable that these differences will not reverse
in the foreseeable future. As at December 31, 2021 and 2020, no deferred tax liability has been recognized on the temporary
differences of $493 million ($318 million as at December 31, 2020) associated with investments in subsidiaries and associates.
27.5 Movement in the net deferred tax asset (liability)
Table 27.4 – Movement in the net deferred tax asset (liability)
As at December 31,
Balance, beginning of year
Business combination and other acquisitions
Income tax benefit (expense):
recorded in net income
recorded in OCI
recorded in equity
Exchange rate differences and other
Balance, end of year
Reported in:
deferred tax assets
deferred tax liabilities
2021
(100)
(21)
7
(52)
53
(1)
(114)
584
(698)
2020
(111)
(24)
46
(15)
1
3
(100)
179
(279)
As a result of the RSA acquisition, the Company has recorded $440 million of deferred tax assets, which was included in the acquired
net assets of RSA. Refer to Note 5.1 – Business combination for more details.
INTACT FINANCIAL CORPORATION 69
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
27.6 Unused tax losses, tax credits and other tax attributes
The following table presents a summary of unused tax losses and credits, as well as the amount for which a deferred tax asset was
recognized on the Consolidated Balance sheets as at December 31, 2021 and 2020.
Table 27.5 – Unused tax losses and tax credits
As at December 31,
Unused net operating losses:
US
Canada
UK
Ireland
Other jurisdictions
Unused tax credits:
US
Unused allowable capital losses:
Canada
Ireland
UK
2021
Total Recognized
Expiry date
2020
Total Recognized
Expiry date
179
211
2,942
523
121
25
1
1
2,196
2024-2036
179
208
2037-2041
154 No expiry date
170 No expiry date
9 No expiry date
25
2030-2041
-
-
-
No expiry date
No expiry date
No expiry date
219
256
-
-
-
29
5
-
-
219
254
-
-
-
2033-2036
2037-2040
n/a
n/a
n/a
29
2030-2040
1 No expiry date
n/a
-
n/a
-
Unused tax credits can be used to offset US tax payable in the future. Unused allowable capital losses in Canada can be used to
reduce future taxable capital gains. Unused capital losses in the UK and Ireland have not been recognized as it is not considered
probable that they will be utilized in the future.
In addition to tax losses and tax credits not recognized, the Company had deductible temporary differences of $753 million as at
December 31, 2021, for which no deferred tax asset was recognized on the Consolidated Balance Sheet. These deductible temporary
differences are predominantly located in the UK.
Deferred tax assets in respect of losses, deductible temporary differences and tax credits have been recognized on the basis that
management consider it probable that future taxable profits will be available against which deferred tax assets can be utilized. The
utilization of deferred tax assets will depend on whether it is possible to generate sufficient taxable income based on future profit
projections in the respective tax type and jurisdiction. Management also considers tax planning opportunities that will create future
taxable income against which the unused losses, deductible temporary differences and tax credits can be utilized.
27.7 Dividend received deduction
During fiscal 2021, the Company was reassessed by the CRA for additional income tax and interest with respect to the 2014, 2015
and 2016 taxation years. The ATRA has commenced issuing reassessments on the same basis in respect of the 2014, 2015 and
2016 taxation years and the Company expects RQ to reassess in 2022. The total amount of additional income taxes and interest
owed (including estimated provincial tax and interest) is approximately $16 million for the 2014 taxation year, $13 million for the 2015
taxation year and $5 million for the 2016 taxation year.
In 2020, the CRA and ATRA reassessed the Company for additional income tax and interest in respect of the 2013 taxation year.
Throughout the months of April and May 2021, the RQ also reassessed the Company for the same issue in respect of the 2013
taxation year. The total amount of additional income taxes and interest owed for the 2013 taxation year is approximately $9 million.
All reassessments received to date have been paid in full and accordingly, no additional interest should be owing in the event of an
unfavourable outcome.
These tax authorities are denying certain dividend deductions on the basis that they were part of a “dividend rental arrangement”. The
Company is confident that its tax filing position was appropriate and intends to defend itself vigorously. As a result, no amounts have
been accrued in the Consolidated financial statements.
70 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 28 – Earnings per share
EPS was calculated by dividing the Net income attributable to common shareholders of the Company by the weighted-average number
of common shares outstanding during the year. Dilution is not applicable and, therefore, diluted EPS is the same as basic EPS.
Table 28.1 – Earnings per share
For the years ended December 31,
Net income attributable to shareholders
Less: dividends declared on preferred shares, net of tax
Net income attributable to common shareholders
Weighted-average number of common shares outstanding (in millions)
EPS – basic and diluted (in dollars)
Note 29 – Share-based payments
29.1 Long-term incentive plan
2021
2,067
53
2,014
162.4
12.40
2020
1,082
52
1,030
143.0
7.20
a)
Outstanding LTIP units and fair value at grant date
Table 29.1 – Outstanding units and weighted-average fair value at grant date by performance cycle
As at December 31,
Performance cycles
2017 - 2022
2018 - 2020
2019 - 2021
2020 - 2022
2021 - 2023
2021
Weighted-
average fair value
at grant date
(in $)
Amount
(in millions
of $)
Number of
units
2020
Weighted-
average fair value
at grant date
(in $)
Amount
(in millions
of $)
103.88
-
102.36
136.06
149.17
127.48
11
-
48
56
77
105,515
458,165
451,640
404,755
-
192
1,420,075
103.88
105.14
102.36
136.06
-
112.64
11
48
46
55
-
160
Number of
units
110,005
-
470,541
416,240
513,190
1,509,976
b)
Movements in LTIP units
Table 29.2 – Movements in LTIP share units
For the years ended December 31,
Outstanding, beginning of year
Awarded
Net change in estimate of units outstanding
Units settled
Outstanding, end of year
2021
(in units)
1,420,075
432,618
151,290
(494,007)
1,509,976
2020
(in units)
1,357,796
370,510
(25,549)
(282,682)
1,420,075
LTIP expense recognized in Net income
c)
The LTIP is accounted for as an equity-settled plan, except for the participants that are eligible to receive cash in lieu of shares of the
Company (accounted for as a cash-settled plan).
Table 29.3 – LTIP expense recognized in Net income
For the years ended December 31,
Cash-settled plans
Equity-settled plans
2021
29
47
76
2020
13
38
51
INTACT FINANCIAL CORPORATION 71
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
29.2 Employee share purchase plan
a)
Movements in restricted common shares
Table 29.4 – Movements in restricted common shares
For the years ended December 31,
Outstanding, beginning of year
Accrued
Awarded and vested
Forfeited
Outstanding, end of year
2021
(in units)
123,114
115,625
(122,386)
(2,625)
113,728
2020
(in units)
116,036
124,076
(115,299)
(1,699)
123,114
ESPP expense recognized in Net income
b)
The ESPP is accounted for as an equity-settled plan. For the years ended December 31, 2021 and 2020, the ESPP expense was
$17 million and $14 million respectively.
29.3 Deferred share unit
The DSU is accounted for as a cash-settled plan. For the year ended December 31, 2021, the expense was $1 million ($3 million –
December 31, 2020). The DSU provision amounted to $19 million as at December 31, 2021 ($18 million as at December 31, 2020).
29.4 Executive stock option plan
Fair value of ESOP at grant date
a)
In May 2021, the Company established an ESOP for certain key executive employees of the Company. As at December 31, 2021,
1,430,181 common shares have been reserved for issuance under the ESOP, and no SARs were granted.
On June 1, 2021, the Company approved a grant of 830,166 stock options. The fair value of the stock options granted, and the key
assumptions used in the calculation of their fair value on the date of grant using the Black-Scholes option pricing model were as
follows:
Table 29.5 – Key assumptions used in the Black-Scholes option pricing model
As at December 31, 2021
Grant date fair value
Exercise price1
Share price at the date of grant
Expected life
Risk-free interest rate
Expected volatility2
Dividend yield
Values
$20.05
$161.27
$163.24
8 years
1.37%
18.3%
3.07%
1 The exercise price was approved by the HRC Committee and represents the weighted average trading price for the three-week period preceding the
grant date.
2 The expected volatility was determined by using the Company’s own historical volatility on a daily basis, calculated over a period corresponding to
the expected life of the options.
The maturity date of the options outstanding is June 1, 2031. Their remaining contractual life as at December 31, 2021 is nine years
and five months.
ESOP expense recognized in Net income
b)
The ESOP is accounted for as an equity-settled plan. For the year ended December 31, 2021, the ESOP expense was $2 million.
72 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
29.5 Common shares repurchased for share-based payments
The settlement in shares with regards to the Company’s LTIP and ESPP plans is presented below.
Table 29.6 – Settlement in shares (LTIP and ESPP plans)
For the years ended December 31,
Value of common shares repurchased for share-based payments
Less: cumulative cost of the units for the Company
Excess of market price over the cumulative cost for the Company
Amount recognized in Retained earnings, net of taxes
2021
2020
64
42
22
16
49
35
14
11
The cumulative cost of the units that vested during the year and were settled through the plan administrator purchasing common
shares on the market and remitting them to the participants was removed from Contributed surplus.
The difference between the market price of the shares and the cumulative cost for the Company of these vested units, net of income
taxes, was recorded in Retained earnings.
INTACT FINANCIAL CORPORATION 73
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 30 – Employee future benefits
30.1 Employee future benefits
The Company provides various post-employment plans, including DB and defined contribution pension plans as well as other benefit
plans for its employees as described below. In the US, the Company offers a 401(k) plan to its employees.
a)
Employee future benefits in Canada
The Company has funded and unfunded DB pension plans in Canada that provide benefits to members in the form of a guaranteed
pension payable for life based on final average earnings and contingent upon certain age and service requirements. In Canada, the
Company provides active employees a choice between a DB and a defined contribution pension plan.
Subject to applicable pension legislation, the Canadian plans are administered either by the Company or by a pension committee,
with assets held in a pension fund that is legally separate from the Company. The assets cannot be used for any purpose other than
payment of pension benefits and related administrative fees.
Provincial minimum funding regulations in Canada require special payments from the Company to amortize any shortfall of registered
plans’ assets relative to the corresponding funding targets. Security in the form of letters of credit is permitted in lieu of those special
payments, up to a limit of 15% of the actuarial liability used to determine the funding target.
Subject to applicable legal requirements in Canada, any balance of assets remaining after providing for the accrued benefits of the
plan members may be returned to the Company upon termination of the plan. Pension legislation in certain provinces may require
that the Company submit a proposal to the members and beneficiaries regarding the allocation of surplus assets. However, on an
ongoing basis, a portion of such surplus may be recoverable by the Company through a reduction in future contributions or through
payment of eligible administrative expenses.
The Company also offers employer-paid post-retirement life insurance and health care benefit plans to a limited number of active
employees and retirees as well as post-employment benefit plans that provide health and dental coverage to employees on disability
for the duration of their leaves. These post-retirement and post-employment benefit plans are unfunded.
Employee future benefits in relation to the RSA acquisition
b)
RSA has DB pension plans in the UK, Canada, Ireland and other countries, with the most significant plans in the UK. RSA also
provides post-retirement life insurance and healthcare benefits to a limited number of active employees and retirees in Canada and
statutory end-of-service indemnities to certain employees in the Middle East, in addition to defined contribution pension plans.
UK DB pension plans
The plans were effectively closed to new entrants in 2002 and subsequently closed to future accruals with effect from March 31, 2017.
The plan assets are mainly held in separate trustee administered funds. The plans in surplus are net a 35% tax expense of an
authorized return of surplus; the Company does not believe the tax to be an income tax expense within the meaning of IAS 12 –
Income Taxes (“IAS 12”), but rather classifies it with “other net surplus remeasurements”.
Accrued benefits are revalued up to retirement in accordance with government indices for inflation. After retirement, pensions in
payment are increased each year based on the increases in the government indices for inflation, subject to maximum caps.
Each plan is subject to triennial valuations, which are used to determine the future funding. The effective date of the most recent
valuations of the main UK plans was March 31, 2018.
At the most recent funding valuation, the main UK plans had an aggregate funding deficit of £468 million ($800 million), equivalent
to a funding level of 95%. On November 18, 2020, an agreement was reached with the pension trustees and the Company requiring
the following funding commitments:
• An additional contribution of approximately £75 million ($129 million) at closing;
• Continuation of current funding arrangements of approximately £75 million ($129 million) per year plus expenses and
regulatory levies until the plans are fully funded on a previously agreed longer term funding basis; and
The Company provides parental guarantees of the obligations.
•
The next funding valuation will be dated as at March 31, 2021 and is expected to be completed in the first half of 2022.
74 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Canada DB pension plans
The net DB pension asset reported for certain plans has been limited further to the application of the accounting rules as clarified by
IFRIC 14, as presented in line Other net surplus remeasurement of Table 30.1. For the affected plans, it was estimated that the fair
value of plan assets, including expected future contributions, exceeds the amount needed to fulfil the plan’s obligations. The excess
assets are not recognized on the Consolidated balance sheet. In determining a plan’s obligations for this purpose, future administration
expenses expected to be charged to the pension fund were considered.
30.2 Annuity buy-in insurance contracts
In 2021, as part of its de-risking strategy, the Company purchased qualifying annuity buy-in insurance contracts of $808 million on
behalf of certain Canadian DB pension plans, including those of RSA Canada. The resulting actuarial loss was recognized in OCI.
The fair value of annuity buy-in insurance contracts fluctuates based on changes in the associated DB obligation. These values are
unquoted due to the use of the significant unobservable inputs used in deriving these assets’ fair values.
30.3 Funded status
The DB obligation, net of the fair value of plan assets, is recognized on the Consolidated balance sheets as an asset, when the plan
is in a surplus position, or as a liability, when the plan is in a deficit position. This classification is determined on a plan-by-plan basis.
Table 30.1 – DB pension plan asset (liability) by country
As at December 31,
DB obligation1
Fair value of plan assets
Other net surplus remeasurement2
Net DB asset (liability)
2021
UK
Canada
Other
Total
(14,665)
15,899
(435)
799
(3,739)
3,736
(24)
(27)
(165)
195
-
30
(18,569)
19,830
(459)
802
2020
Canada
(3,151)
2,891
-
(260)
Reported in:
other assets – plans in a surplus position (Table 18.1)
other liabilities – plans in a deficit position and unfunded plans
(Table 18.2)
Funded status – funded plans
808
189
30
1,027
-
(9)
799
108%
(216)
(27)
106%
-
30
118%
(225)
802
108%
(260)
(260)
97%
1 The weighted average duration of the DB obligation for the UK plans was 17.6 years and of the Canada plans was 18.0 years as at December 31,
2021 (Canada plans was 18.8 years as at December 31, 2020).
2 Includes a 35% tax expense of an authorized return of surplus related to UK DB plans as it does not fall within the meaning of IAS 12 and the impact
of the asset ceiling related to certain Canadian DB plans.
The latest actuarial valuations for the Canadian DB pension plans were performed as at December 31, 2020 for the IFC plans and as
at December 31, 2019 for the RSA plans. The Company’s liquidity risk with regards to these pension plans is not significant, as inflows
from contributions and buy-in annuity policies mostly offset outflows for benefit payments. A large portion of the invested assets is
held in short-term notes and highly liquid federal and provincial government debt to protect against any unanticipated large cash
requirements. The latest actuarial valuations for the two main UK DB pension plans were performed as at March 31, 2018, as
described in Note 30.1 above.
30.4 Movement in the DB obligation and fair value of plan assets
The DB obligation is based on the current value of expected benefit payment cash flows to plan members over their expected lifetime.
The Company makes contributions to the DB pension plans to secure the benefits. The amount and timing of the Company’s
contributions are made in accordance with applicable pension and tax legislation following the advice of an actuary. Under the
provisions of the pension plans in Canada, members may annually select between three different DB levels and are required to make
contributions to their respective plans based on the benefit level selected. The Company must fund the excess of the required funding
over the members’ contributions. The Company funds the UK plans further to agreements with the pension trustees. Since the UK
plans are closed to future accruals, contributions that are made are with respect to past service deficiencies.
INTACT FINANCIAL CORPORATION 75
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 30.2 – Movement in the DB obligation and fair value of plan assets
As at December 31, 2021
DB obligation
Fair value of
plan assets
Other net
surplus
remeasurement
Net DB asset
(liability)
Balance, beginning of year
Business combination
Current service cost
Net interest expense
Other
Total benefit (expense) recognized in Net income
Change in discount rate
Change in other financial assumptions
Changes in plan experience
Changes in demographic assumptions
Actual return on plan assets
Other net surplus remeasurements
Net actuarial gains (losses) recognized in OCI
Employee contributions
Employer contributions
Benefit payments
Exchange rate differences
Balance, end of year
(3,151)
(15,139)
(91)
(244)
-
(335)
83
(157)
(245)
(81)
-
-
(400)
(37)
-
456
37
2,891
16,100
-
248
(13)
235
-
-
-
-
856
-
856
37
206
(456)
(39)
-
(355)
-
-
-
-
-
-
-
-
-
(104)
(104)
-
-
-
-
(18,569)
19,830
(459)
(260)
606
(91)
4
(13)
(100)
83
(157)
(245)
(81)
856
(104)
352
-
206
-
(2)
802
As at December 31, 2020
DB obligation
Fair value of
plan assets
Other net
surplus
remeasurement
Net DB asset
(liability)
Balance, beginning of year
Current service cost
Net interest expense
Other
Total benefit (expense) recognized in Net income
Change in discount rate
Change in other financial assumptions
Changes in plan experience
Actual return on plan assets
Net actuarial gains (losses) recognized in OCI
Employee contributions
Employer contributions
Benefit payments
Balance, end of year
(2,756)
(72)
(84)
-
(156)
(229)
(34)
(34)
-
(297)
(36)
-
94
2,472
-
74
(4)
70
-
-
-
356
356
36
51
(94)
(3,151)
2,891
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(284)
(72)
(10)
(4)
(86)
(229)
(34)
(34)
356
59
-
51
-
(260)
In 2020, remeasurements of the DB obligation and pension plan assets were impacted by the market volatility resulting from the
COVID-19 crisis (refer to Note 30.6 a) – Assumptions used and sensitivity analysis).
76 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
30.5 Composition of pension plan assets
Pension plan assets are mainly composed of securities from the government and financial sectors.
Table 30.3 – Composition of fair value of pension plan assets by quoted and unquoted
As at December 31, 2021
UK
Canada
Other
Total % of total
Total
quoted
Total
unquoted
Cash and cash equivalents
Debt securities
Government
Non-government
Debt securities
Annuity buy-in insurance contracts
Common shares
Derivative financial instruments
Property
Other
Securities sold under repurchase
agreements
Total investments
Value of asset and longevity swaps
Total assets
146
21
11,230
6,241
17,471
-
985
1,780
1,125
611
1,154
781
1,935
793
1,220
37
-
-
-
(270)
22,118
(6,219)
15,899
3,736
-
3,736
1
83
13
96
-
35
21
1
41
-
195
-
195
As at December 31, 2020
Cash and cash equivalents
Debt securities
Government
Non-government
Debt securities
Common shares
Derivative financial instruments
Securities sold under repurchase agreements
Total assets
168
-
168
-
12,467
7,035
19,502
793
2,240
1,838
1,126
652
(270)
26,049
(6,219)
19,830
63%
35%
98%
4%
11%
9%
6%
3%
-
12,467
4,775
17,242
-
1,779
-
2
-
-
131%
(31%)
19,191
-
-
2,260
2,260
793
461
1,838
1,124
652
(270)
6,858
(6,219)
100%
19,191
639
Canada % of total
Total
quoted
Total
unquoted
(7)
-
-
1,391
663
2,054
1,043
59
(258)
2,891
48%
23%
71%
36%
2%
(9)%
1,391
603
1,994
807
-
-
100%
2,801
(7)
-
60
60
236
59
(258)
90
In 2009, RSA entered into an arrangement that provides coverage against longevity risk for 55% of the retirement obligations relating
to pensions in payment of the two largest UK plans at that time. The arrangement provides for reimbursement of the covered pension
obligations in return for the contractual return receivable on a portfolio made up of quoted government debt of £5,159 million ($8,823
million) which was offset by swaps held by the pension funds of £3,636 million ($6,219 million) as at December 31, 2021. The
swaps are accounted for as longevity swaps and are measured at fair value by discounting all expected future cash flows using a
discounted rate which reflects the economic matching nature of the arrangement with a range of acceptable values obtained from
external sources. As at December 31, 2021, the total value of the arrangement, including government debt measured at prices quoted
in an active market was £1,523 million ($2,604 million).
Based on the latest projections of the financial position of all its plans, total cash contributions by the Company are expected to be
approximately $208 million in 2022 including $129 million (£75 million) of additional contributions to reduce the deficit of the UK
plans. The contributions will vary depending on the number of active members accruing benefits and their level of pensionable
earnings, the results of any new actuarial valuations, the impact of any funding rule changes, the use of funding relief measures, if
any, and decisions taken by the Company to use or not use letters of credit as permitted by legislation. The Company is also expected
to meet the cost of eligible administrative expenses through the pension funds.
INTACT FINANCIAL CORPORATION 77
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
30.6 Significant accounting judgments, estimates and assumptions
The cost of the DB plans and the DB obligation are calculated by the Company’s independent actuaries using assumptions determined
by management. The costs are calculated using assumptions determined by management. The actuarial valuation involves making
assumptions about discount rates, future salary increases, future inflation, the employees’ age upon termination and retirement,
mortality rates, future pension increases, disability incidence and health and dental care cost trends. If actual experience differs from
the assumptions used, the expected obligation could increase or decrease in future years.
Due to the complexity of the valuation and its long-term nature, the DB obligation is highly sensitive to changes in the assumptions.
Assumptions are reviewed at each reporting date. The COVID-19 crisis impacted the long-term yields of high-quality corporate bonds,
which resulted in significant volatility in the discount rate in the first half of 2020.
a)
Assumptions used and sensitivity analysis
Table 30.4 – Key weighted-average assumptions used in measuring the Company’s pension plans
As at December 31,
To determine the defined benefit obligation:
Discount rate
Rate of increase in future compensation:
next 3 years
beyond 3 years
Rate of inflation (CPI)
Rate of inflation (RPI)
Rate of increase in pensions1
For the years ended December 31,
To determine the benefit expense:
Discount rate:
current service cost
interest expense on the DB obligation
Rate of increase in future compensation:
next 3 years
beyond 3 years
Rate of inflation (CPI)
Rate of inflation (RPI)
Rate of increase in pensions1
Pension Plans
2021
Canada
3.25%
2.75%
3.07%
2.07%
n/a
n/a
Other
1.58%
n/a
n/a
n/a
n/a
n/a
Pension Plans
2021
Canada
2.84%
2.29%
2.75%
2.55%
1.75%
n/a
n/a
Other
n/a
1.40%
n/a
n/a
n/a
n/a
n/a
2020
Canada
2.71%
2.75%
2.49%
1.74%
n/a
n/a
2020
Canada
3.18%
2.97%
2.75%
2.34%
1.59%
n/a
n/a
UK
1.84%
n/a
n/a
2.71%
3.35%
3.14%
UK
n/a
1.94%
n/a
n/a
2.69%
3.35%
3.09%
1 For the UK, the annual rate of increase in pensions shown is the rate that applies to pensions that increase at RPI subject to a cap of 5%. For other
plans, the weighted average assumption is shown.
The following table presents the assumptions regarding future mortality. The current life expectancies underlying the values of the DB
obligation and benefit expenses in the DB plans are as follows.
Table 30.5 – Future mortality assumptions
For the years ended December 31,
Life expectancy (in years) for pensioners at the age of 65:
male
female
Pension Plans
UK
22.4
23.8
2021
Canada
22.6
24.6
Other
22.5
24.4
2020
Canada
22.2
24.6
78 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The rate of compensation increase for the Canadian DB plans was based on financial plans approved by management for the next
3 years, and on inflation and long-term expectations of wage salary increase beyond 3 years. Assumptions regarding life expectancy
for pensioners in the Canadian DB plans are based on the standard Canadian private sector mortality table published in 2014 by the
Canadian Institute of Actuaries (“CPM2014Priv table”). The assumptions for the IFC plans also reflect the results of a mortality
experience study conducted in 2018. The core mortality rates assumed for the main UK plans are based on the latest industry-
standard UK tables published in 2018 by the Continuous Mortality Investigation (“CMI”) (S3 series tables) with percentage adjustments
to reflect the plans’ recent experience based on the latest study conducted in 2021. Reductions in future mortality rates are allowed
for by using the CMI 2020 tables with a long-term improvement rate of 1.25%.
The following table presents the sensitivity analysis of the main DB obligation to key assumptions.
Table 30.6 – Sensitivity of the DB obligation to key assumptions
As at December 31,
Discount rates
Discount rates
Rate of increase in future compensation
Rate of increase in future compensation
Rate of inflation
Rate of inflation
Life expectancy
Life expectancy
Change
2021
UK
Canada
+1%
-1%
+1%
-1%
+1%
-1%
+ One year
- One year
(2,220)
2,880
-
-
1,562
(1,490)
556
(556)
(578)
769
153
(133)
98
(89)
95
(95)
2020
Canada
(541)
729
144
(125)
98
(89)
83
(83)
The effect on the DB obligation at the end of the year has been calculated by changing one assumption for the sensitivity but without
changing any other assumptions. The impact of a one-year increase (decrease) in life expectancy has been approximated by
measuring the impact of members being one year younger (older) than their actual age on the valuation date.
30.7 Risk management and investment strategy
Employee DB provisions expose the Company to balance sheet volatility resulting from changes in actuarial assumptions (such as
longevity, interest rates, credit spreads and inflation). The ultimate cost of the DB provisions to the Company will depend upon future
events rather than on the assumptions made. In general, the risk to the Company is that the assumptions underlying the disclosures,
or the calculation of contribution requirements are not borne out in practice and the cost to the Company is higher than expected. This
could result in higher contributions required from the Company and a higher deficit disclosed.
Factors that may vary significantly include:
The actual return on plan assets;
•
• Decrease in asset values not being matched by a similar decrease in the value of liabilities; and
• Unanticipated future changes in mortality patterns leading to an increase in the DB liabilities.
The DB obligation and the service cost are sensitive to the assumptions made about salary growth levels and inflation, as well as the
assumptions made about life expectancy. They are also sensitive to the discount rate, which is based on estimates of market yields
on highly rated corporate bonds.
UK DB pension plans
a)
The UK plans are managed through trusts with independent trustees responsible for all oversight and the safeguarding of the interests
of all members at all times. The Trustees work closely with the Company and meet regularly to discuss the funding position, investment
strategy and any proposed changes to the plans. The plans are regulated by The Pensions Regulator.
The assets of the UK plans are held under trust, with control of these arrangements belonging to the Trustees. Investment strategy is
set by the Trustees after consultation with the Company. Both the Company and the Trustees with the support of their investment
advisers regularly review the performance of the plans’ assets to ensure that they are performing in line with expectations. In addition,
stress and scenario testing is regularly carried out to understand current exposures.
The plans have taken significant steps over recent years to substantially de-risk from return seeking assets such as equities into
bonds and other asset classes that produce a stable stream of cashflows that match liabilities. Market conditions and funding levels
are also monitored dynamically on an ongoing basis to identify opportunities for further de-risking.
INTACT FINANCIAL CORPORATION 79
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
In addition, the plans have significant hedging strategies in place including the use of interest rate, inflation rate and longevity swaps
to mitigate the risk of market movements adversely impacting the financial position. For example, the two large UK plans entered into
arrangements in 2009 that effectively removed all market and demographic risk associated with around 55% of the retiree liabilities
at that time. As a result, significant inflation exposure for liabilities is fully hedged through the use of a portfolio consisting of UK Index-
Linked Government Bonds and inflation swaps.
Canadian DB pension plans
b)
The Management Pension Committee is responsible for the oversight of the pension plans, including the review of the funding policy
and investment performance. The Statement of Investment Policies and Procedures of the pension plan (the “SIP&P”) formulates
investments principles, guidelines and monitoring procedures to meet the funds’ needs and objectives, in conformity with applicable
rules. It also establishes principles and limits pertaining to debt and equity market risks. Any deviation from the SIP&P is reviewed by
the Operational Investment Committee. The Risk Management Committee, which is a committee of the Company’s Board of Directors,
is responsible for the approval of the SIP&P and the review of the pension plans’ investment performance.
The pension plans investment portfolio is managed by Intact Investment Management Inc., a subsidiary of the Company, in
accordance with the SIP&P that focuses on asset diversification and asset-liability matching. The Company regularly monitors
compliance with the SIP&P.
Asset diversification
The goal of asset diversification is to limit the potential of sustaining significant capital losses.
Debt securities in the pension plans are significantly exposed to changes in interest rates and movements in credit spreads.
Investment policies seek a balanced target investment allocation between debt and equity securities, within credit concentration limit.
The pension plans’ risk management strategy is to invest in debt instruments of high credit quality issuers and to limit the amount of
credit exposure with respect to any one issuer by imposing limits based upon credit quality. The adopted SIP&P generally requires
minimum credit ratings of ‘BBB’ for investments in debt securities and limits its concentration in any one investee or related group of
investees to 5% of the cost of its total assets for debt securities (except for those that are issued or guaranteed by the Government of
Canada or by a province of Canada having at least an ‘A’ rating). The Company has overall limits on credit exposure that include debt
and equity securities, as well as off-balance sheet exposure.
Sensitivity analysis is one risk management technique that assists management in ensuring that equity risks assumed remain within
the pension plans’ risk tolerance level. The Company’s pension plans have a significant concentration of their investments in Canada
as well as in the Government sector. This risk concentration is closely monitored.
As part of a de-risking strategy, annuity buy-in insurance contracts were acquired in 2021 in five Intact and RSA pension plans. These
contracts effectively removed all market and demographic risk associated with around 60% of the retiree liabilities in the Company’s
Canadian registered pension plans.
The Company also establishes asset allocation limits to ensure sufficient diversification (see Note 10.4 – Credit risk).
Asset-liability matching
One objective established in the SIP&P is to maintain an appropriate balance between the interest rate exposure of the plans’ invested
assets and the duration of its contractual liabilities. The Company calculates an interest rate hedge ratio as the interest rate duration
of the pension asset portfolio divided by the duration of the funded registered pension plans’ obligation. A lower interest rate hedge
ratio increases the Company’s exposure to changes in interest rates. In performing this calculation, the obligation covered by annuity
buy-in insurance contracts, is considered to be fully hedged and the plans are assumed to be 100% funded. The interest rate hedge
ratio was 73% as at December 31, 2021 (72% as at December 31, 2020).
A portion of the pension plan liabilities contain an indexation provision linked to the consumer price index (CPI). The Company invests
in inflation sensitive assets to partially mitigate the risk of an unanticipated increase in inflation. As at December 31, 2021, 22% of
pension plan assets were invested in Canada Government Real Return Bonds (21% as at December 31, 2020). In addition, some of
the inflation-linked liabilities were covered by the annuity buy-in insurance contracts acquired in 2021.
The Company used repurchase agreements to partly fund the increase of fixed income securities in the pension plan asset mix with
the objective to improve its asset-liability matching.
80 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 31 – Segment information
31.1 Reportable segments
In connection with the RSA acquisition, the Company changed the composition of its reportable segments in the third quarter of 2021
to align with how senior management assesses its operating performance. The Company now has three reportable segments, in line
with its management structure and internal financial reporting which is based on country, and the nature of its activities as described
below.
Canada
• Underwriting of automobile, home and business insurance contracts to individuals and businesses in Canada distributed through
a wide network of brokers and directly to consumers, including the results of RSA’s Canadian operations since July 1, 2021.
• Distribution income includes the operating results from the Company’s wholly owned subsidiaries, Brokerlink Inc. and broker
affiliates, including the results of RSA’s Canadian operations since July 1, 2021, as well as supply chain operations from On Side.
UK & International
• Underwriting of automobile, home, pet and business insurance contracts to individuals and businesses in the UK, Europe, Ireland
and the Middle East as well as internationally through the Company’s global network since July 1, 2021. The Company distributes
insurance through a wide network of affinity partners and brokers or directly to consumers.
US
• Underwriting of specialty contracts mainly to small to medium-sized businesses in the United States. The Company distributes
insurance through independent agencies, brokers, wholesalers and managing general agencies.
Corporate and Other (“Corporate”) consists of investment management, treasury and capital management activities, corporate
reinsurance, including certain internal and external agreements as well as other corporate activities. The results of RSA’s Canadian
and UK&I operations for June 2021 were included in Corporate and Other as it was not significant.
31.2 Segment operating performance
All segment operating revenues presented in Table 31.1 – Segment operating performance are generated from external customers.
Management measures the profitability of the Company’s segments based on PTOI which excludes elements that are not
representative of the Company’s operating performance because they include elements that arise mostly from changes in market
conditions, relate to acquisition-related items or special items, or because they are not part of the Company’s normal activities. In
addition, the Company presents:
• Other underwriting revenues against Operating net claims and Operating net underwriting expenses, as a result, they are
not included in segment operating revenues;
• Share of profit from investments in associates & JV before interest and taxes from affiliated brokers (“broker associates”);
• Finance costs including finance costs from broker associates resulting in total finance costs.
The reconciliation of the segment information to the amounts reported in the Consolidated statements of income is presented in Table
31.2 – Reconciliation of segment information to amounts reported in the Consolidated statements of income.
INTACT FINANCIAL CORPORATION 81
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 31.1 – Segment operating performance1
For the years ended December 31,
Canada UK&I
US
Corp.
Total Canada
US
Corp.
Total
2021
2020
Operating income
Operating NEP
Investment income
Other
11,450
-
389
2,319
-
-
1,652
-
-
622 16,043
740
740
421
32
9,633
-
309
1,582
-
-
5
600
18
11,220
600
327
Segment operating revenues
11,839
2,319
1,652
1,394
17,204
9,942
1,582
623
12,147
Operating net claims
Operating net underwriting expenses
Investment expenses
Share of profit from invest. in
associates & JV
Total finance costs
Other
PTOI
Operating income tax expense
Net income (loss) attributable to NCI
Preferred share dividends
NOI attributable to common
shareholders
PTOI is comprised of:
underwriting income
net investment income
distribution income
total finance costs
other operating income (expense)
(6,259)
(3,666)
-
(1,381)
(786)
-
(910)
(625)
-
(423)
(206)
(34)
(8,973)
(5,283)
(34)
(5,571)
(2,908)
-
(893)
(608)
-
(13)
-
(23)
(6,477)
(3,516)
(23)
146
(9)
(173)
-
-
-
-
-
-
1,878
152
117
-
(153)
(57)
521
1,525
-
362
(9)
-
152
-
-
-
-
117
-
-
-
-
(7)
706
-
(153)
(25)
146
(162)
(230)
2,668
(577)
(21)
(53)
2,017
1,787
706
362
(162)
(25)
121
(11)
(155)
-
-
-
1,418
81
-
(115)
(55)
417
81
-
-
-
-
(8)
577
-
(115)
(37)
1,154
-
275
(11)
-
-
9,869
121
(126)
(210)
1,916
(445)
-
(52)
1,419
1,227
577
275
(126)
(37)
Investments (Note 6)
Net claims liabilities (Table 11.1)
-
13,663
-
5,234
-
1,669
36,680
36,680
227 20,793
-
1,530
20,630
-
20,630
11,399
1 See Section 38 – Non-GAAP and other financial measures of the Company’s MD&A for the definition and reconciliation of related operating measures.
Table 31.2 – Reconciliation of segment information to amounts reported in the Consolidated statements of income
For the years ended December 31,
Segment operating revenues (Table 31.1)
Add: other underwriting revenues
Add: NEP from exited lines
Revenues, as reported
Segment PTOI (Table 31.1)
Non-operating items1:
net gains (losses)
gain on bargain purchase
positive (negative) impact of MYA on underwriting
amortization of intangible assets recognized in business combination
acquisition, integration and restructuring costs
non-operating pension expense
underwriting results from exited lines
other
Pre-tax income, as reported in the MD&A
Less: share of income tax expense of broker associates
Income before income taxes, as reported
2021
17,204
236
195
17,635
2,668
249
204
226
(199)
(429)
(64)
(53)
(4)
2,598
(30)
2,568
2020
12,147
135
21
12,303
1,916
182
-
(315)
(154)
(115)
(53)
(62)
(18)
1,381
(22)
1,359
1 See Section 37 – Non-operating results of the Company’s MD&A for the definition of related non-operating measures.
82 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.3 Information by geographic areas
Table 31.3 – Geographic areas
As at December 31,
Canada
UK&I
US
Revenues
2021
12,973
2,915
1,747
17,635
2020
10,630
-
1,673
12,303
Total assets
2021
37,899
21,102
7,348
66,349
2020
28,235
-
6,884
35,119
Revenues and assets are allocated based on the country where the risks originate. The Company’s significant operating subsidiaries
by geographic areas of operations are presented below.
Table 31.4 – Significant operating subsidiaries by geographic areas
Operations
Canada
US
UK&I
Legal entities
• Belair Insurance Company Inc.
• Brokerlink Inc.
• Canadian Northern Shield Insurance Company
• Equisure Financial Network Inc.
•
•
•
•
• Novex Insurance Company
• Atlantic Specialty Insurance Company
•
IB Reinsurance Inc.
Intact Insurance Company
Intact Public Entities Inc.
Jevco Insurance Company
Intact Insurance Group USA Holdings Inc.
Intact U.S. Financial Services Inc.
• On Side Developments Ltd.
• Quebec Assurance Company
• Royal & Sun Alliance Insurance Company of Canada
•
•
•
• Unifund Assurance Company
• Western Assurance Company
The Johnson Corporation
The Nordic Insurance Company of Canada
Trafalgar Insurance Company of Canada
• Split Rock Insurance, Ltd.
•
The Guarantee Company of North America USA
• Al Alamiya for Cooperative Insurance Company
• Al Ahlia Insurance Company SAOG
• Royal & Sun Alliance Insurance Limited
• Royal & Sun Alliance Insurance (Middle East) BSC (c)
• RSA Luxembourg S.A.
• RSA Insurance Ireland DAC
INTACT FINANCIAL CORPORATION 83
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 32 – Additional information on the Consolidated statements of cash flows
32.1 Cash flows from operating activities
Table 32.1 – Cash flows from operating activities
For the years ended December 31,
Adjustments for non-cash items
Net losses (gains) (Note 25)
Gain on bargain purchase (Note 5)
Depreciation of property and equipment1
Amortization of intangible assets
Net premiums on debt securities classified as AFS
DB pension expense
Share-based payments expense
Share of profit from investments in associates and joint ventures (Note 16)
Other
Changes in operating assets and liabilities
Contributions to the defined benefit pension plans (Note 30)
Share-based payments
Changes in net claims liabilities (Note 11)
Unearned premiums, net
Premiums receivable, net
Deferred acquisition costs, net
Other operating assets
Other operating liabilities
Dividends received from investments in associates and joint ventures (Note 16)
1 Includes depreciation of right-of-use assets of leases.
2021
2020
(249)
(204)
148
313
124
100
95
(87)
(49)
191
(206)
(35)
783
434
(90)
(16)
125
130
28
(182)
-
116
198
31
86
65
(52)
(7)
255
(51)
(7)
887
375
(246)
(70)
(124)
295
27
1,153
1,086
84 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 33 – Related-party transactions
The Company enters into transactions with associates and joint ventures, including those classified as held for sale, in the normal
course of business, as well as with key management personnel and pension plans. Transactions with related parties are at normal
market prices and mostly comprise of commissions for insurance policies, interest and principal payments on loans and reinsurance
agreements.
33.1 Transactions with associates and joint ventures
Table 33.1 – Transactions with associates and joint ventures
As at December 31,
Income and expenses reported in:
net earned premiums
net claims incurred
net investment income
underwriting expenses
Assets and liabilities reported in:
reinsurance assets
deferred acquisition costs
loans, other receivables and other assets
claims liabilities
unearned premiums
other payables and other liabilities
commissions payable
2021
2020
(2)
(31)
5
413
83
1
281
9
2
154
112
-
-
5
349
-
-
279
-
-
107
60
33.2 Compensation of key management personnel
The Company’s key management personnel are those that have the authority and responsibility for planning, directing and controlling
the activities of the Company. Following the RSA acquisition, the Company has refined its definition of key management personnel
which now includes the entirety of the Executive Officers of the Company as well as the Board of Directors. Accordingly, the 2020
comparative figures have been retroactively revised.
Table 33.2 – Aggregate compensation of key management personnel
For the years ended December 31,
Compensation1
Share-based payments
2021
2020
21
25
46
20
21
41
1 Compensation is comprised of short-term employee benefits and long-term employee benefits, including pension benefits.
Key management personnel can purchase insurance products offered by the Company in the normal course of business. The terms
and conditions of such transactions are essentially the same as those available to clients and employees of the Company.
33.3 Pension plans
Intact Investment Management Inc., a subsidiary of the Company, manages the investment portfolio of the pension plans’ Master
Trust in return for investment advisory fees charged to the pension plans, for a total of $8 million for the year ended December 31,
2021 ($8 million – December 31, 2020). The Company made contributions to pension plans of $206 million for the year ended
December 31, 2021 ($51 million – December 31, 2020).
INTACT FINANCIAL CORPORATION 85
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 34 – Commitments and contingencies
34.1 Commitments
The Company has entered into commercial leases mainly related to real estate right-of-use assets, as well as other commitments.
The remaining life of these commitments ranges from one to 18 years. Refer to Note 10.5 b) – Financial liabilities by contractual
maturity and Note 18.2 – Other liabilities for details on lease liabilities.
Other non-cancellable commitments
a)
The following table presents other non-cancellable commitments including operational costs and variable lease payments.
Table 34.1 – Other non-cancellable commitments
As at December 31, 2021
Less than 1 year
From 1 to 5 years
Over 5 years
Leases1
Investments2
Other
87
241
219
547
1,087
n/a
n/a
1,087
152
218
4
374
Total
1,326
459
223
2,008
1 Includes variable lease payments not based on an index or rate, such as property taxes.
2 Represents property funds, collateralized debt obligations and other classes of investments which are callable on demand over the life of the funds.
b)
Amounts recognized in the Consolidated statements of income
Table 34.2 – Amounts recognized in the Consolidated statements of income
For the years ended December 31,
Interest expense on lease liabilities
Operational costs and variable lease payment expenses
34.2 Contingencies
2021
16
58
2020
13
44
In the normal course of operations, various insurance claims and legal proceedings are instituted against the Company. Legal
proceedings are often subject to numerous uncertainties, and it is not possible to predict the outcome of individual cases. In
management’s opinion, the Company has made adequate provisions for, or has adequate insurance to cover all insurance claims and
legal proceedings. Consequently, any settlements reached should not have a material adverse effect on the Company’s consolidated
future operating results and financial position. For details on class actions relating to business interruption coverage refer to Note 3.2
– COVID-19 pandemic.
The Company provides indemnification agreements to directors and officers, to the extent permitted by law, against certain claims
made against them as a result of their services to the Company. The Company has insurance coverage for these agreements.
86 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 35 – Disclosures on rate regulation
35.1 Canada
The Company’s Canadian insurance subsidiaries are licensed under insurance legislation in each of the provinces and territories in
which they conduct business. Personal and commercial automobile insurance is a compulsory product and is subject to different
regulations across the provinces and territories in Canada, including those with respect to rate setting.
Rate setting mechanisms generally fall under three categories:
Table 35.1 – Rate filing categories
Category
Description
File and approve
Insurers must wait for specific approval of filed rates before they may be used.
File and use
Insurers file their rates with the relevant authorities and wait for a prescribed period and then
implement the proposed rates.
Use and file
Rates are filed following use.
In Canada, essentially all provinces and territories use a “file and approve” rate setting mechanism except for Quebec, which uses a
“use and file” mechanism. Automobile DPW covered by a “file and approve” rate setting mechanism totalled $4.4 billion, or 74% of
the Canadian Company’s automobile DPW for the year ended December 31, 2021 ($3.8 billion, or 72% – December 31, 2020).
35.2 US
Nearly all states have insurance laws requiring property and casualty insurance companies to file their rates, rules and policy or
coverage forms with the state's regulatory authority. In most cases, such rates, rules and forms must be approved prior to use. While
pricing laws vary from state to state, their objectives are generally to ensure that rates are not excessive, unfairly discriminatory or
used to engage in unfair price competition. The Company’s ability to increase rates and the timing of the process are dependent upon
the regulatory requirements in each state.
35.3 UK&I
In the UK&I, there are no regulations requiring insurance companies to file their rates, however, there are rules to ensure that insurance
companies provide quotes for renewing home and automobile insurance policies that are not greater than quotes for a new customer
through the same channel.
Note 36 – Standards issued but not yet effective
36.1 Insurance contracts
In May 2017, the IASB published IFRS 17 – Insurance Contracts (“IFRS 17”) a comprehensive new accounting standard for insurance
contracts covering recognition, measurement, presentation and disclosure, which replaces IFRS 4 and introduces consistent
accounting for all insurance contracts.
The original effective date was for annual periods beginning on or after January 1, 2021. However, in June 2020, amendments to the
standard were issued and the IASB officially extended the deferral of the effective date and the deferral of the temporary exemption
from applying IFRS 9 as provided by IFRS 4 to January 1, 2023. The Company plans to adopt the new standard on the required
effective date together with IFRS 9.
In December 2021, the IASB issued a narrow-scope amendment to IFRS 17 transition requirements for entities as they first apply
IFRS 17 and IFRS 9. An entity has the option to present comparative information about financial assets on initial application of IFRS
17 and IFRS 9 to avoid temporary accounting mismatches between financial assets and insurance contract liabilities. The Company
has decided to not apply this transition option and not restate comparative period information, instead it will recognize any IFRS 9
measurement differences by adjusting its Consolidated balance sheet on January 1, 2023. IFRS 17 will be applied retrospectively as
of January 1, 2022 to each group of insurance contracts, if retrospective application is impracticable, the modified retrospective
approach or the fair value approach could be applied.
INTACT FINANCIAL CORPORATION 87
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
IFRS 17 provides a general measurement model for the recognition of insurance contracts, which requires measuring insurance
contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance
contracts. In addition, entities have the option to use a simplified measurement model (premium allocation approach) for short-duration
contracts, which is similar to the current approach; this model will be applicable to most property and casualty insurance contracts
issued by the Company.
The main features of the standard that would be applicable to property and casualty insurance contracts are as follows:
•
•
•
•
The concept of portfolio, which is composed of groups of contracts covering similar risks and managed together. The
presentation of insurance and reinsurance contracts on the balance sheet is determined at the portfolio level;
The concept of group, which is composed of sets of contracts with similar profitability issued within the same year. The
following are determined at the group level: the measurement model, the revenue pattern, the allocation of deferred
acquisition costs, the calculation of risk adjustment, onerous contracts and the application of the discount rate;
The loss component of onerous contracts measured based on projected profitability will be recognized in Net income as
soon as insurance contracts are issued;
Insurance liabilities will be discounted at a rate that reflects the characteristics of the liabilities (as opposed to a rate based
on asset returns) and the duration of each portfolio. The effect of changes in discount rates will be recorded either in Net
income or in OCI, according to the accounting policy choice;
• Changes in balance sheet presentation where the premiums receivable, deferred acquisition costs, claims liabilities,
unearned premiums and other related assets and liabilities will be presented together by portfolio on a single line called
insurance contract liabilities or assets. Reinsurance assets, reinsurance receivables, deferred acquisition costs ceded, and
other related assets and liabilities will be presented together by portfolio on a single line called reinsurance contract assets
or liabilities;
• Direct premiums written will no longer be presented in statements of income. The new insurance revenue will reflect services
•
that have been provided during the period (similar to the current earned premiums);
Insurance results will be presented without the impact of discounting. Amounts relating to financing and changes in discount
rates will be shown separately;
• Extensive disclosures to provide information on the recognized amounts from insurance contracts and the nature and extent
of risks arising from these contracts.
The Company has devoted considerable resources and efforts to the implementation of IFRS 17 since its issuance in May 2017. A
program structure was put in place, comprised of a dedicated multi-disciplinary team representing Finance, Actuarial and Information
Technology. Strong governance was established to assist program sponsors who report regularly to the Executive Steering
Committee.
In 2021, the Company finalized its accounting policies and continued its efforts towards documenting detailed requirements and
designing new processes. As well, the Company has made progress with regards to the development and the testing of the
technological solutions required for the compliance with IFRS 17 requirements. The Company also continued to have regular
discussions with industry groups and other stakeholders regarding adoption and interpretation of the standard. In 2022, the Company
is aiming to monitor changes in regulatory requirements, evaluate the impact on processes and continue the development and testing
of the technological solutions started in 2020.
The Company is currently evaluating the impact that IFRS 17, in conjunction with IFRS 9, will have on its Consolidated financial
statements but has not yet determined the impact.
36.2 Financial instruments
IFRS 9 is a three-part standard that replaced IAS 39 and is effective for annual periods beginning on or after January 1, 2018.
However, the Company meets the eligibility criteria of the temporary exemption from IFRS 9 as provided by IFRS 4 and has elected
to defer the application of IFRS 9 until the effective date of the new insurance contracts standards IFRS 17 (see Note 36.1 – Insurance
contracts). The Company is currently evaluating the impact that IFRS 9, in conjunction with IFRS 17, will have on its Consolidated
financial statements but has not yet determined the impact.
88 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Classification and measurement
The classification of debt instruments is dependent on the business model and the cash flow characteristics. A debt instrument will
be classified in accordance with the table below if its contractual term gives rise on specific dates to cash flows that are solely payments
of principal and interest. It would otherwise be classified as FVTPL.
Amortized cost
FVTOCI
FVTPL
Default classification when the
objective of the business model is
uniquely to receive contractual cash
flows of principal and interest.
Default classification when the
objective of the business model is
equally to receive contractual cash
flows of principal and interest and
realize cash flows from the sale.
Classification when the debt instrument does not
meet the objective of the amortized cost or
FVTOCI business models, or election to measure
them as FVTPL instead of amortized cost or
FVTOCI if doing so eliminates or significantly
reduces an accounting mismatch.
Cash and cash equivalents, deposits with financial institutions, and receivables pass the SPPI test and are held at amortized cost,
whereby the amortized cost is assumed to approximate fair value due to the short-term nature of the assets.
Equity instruments and derivatives are usually measured at FVTPL. An entity can also elect on initial recognition to present fair value
changes on an equity investment that is not held for trading directly and permanently in OCI, thus gains or losses are not recognized
in income when the investment is disposed of.
Expected credit loss
This new impairment model applies only to financial assets classified as amortized cost and debt securities classified as FVTOCI.
Under the expected credit loss model, a loss allowance will be established for all financial assets impaired based on a 12-month
expected credit losses or life-time expected credit losses if the credit risk increases significantly.
As an exception from the general requirements, an entity may assume that the criterion for recognizing lifetime expected credit losses
is not met if the credit risk on the financial instrument is low (“investment grade”) at the reporting date.
Hedge accounting
The new model more closely aligns hedge accounting with risk management activities undertaken by companies when hedging their
financial and non-financial risk exposures (under IAS 39, hedging non-financial components is not permitted). It will enable more
entities to:
•
•
apply hedge accounting to reflect their actual risk management activities; and
use information produced internally for risk management purposes as a basis for hedge accounting, compared to IAS 39
which imposes eligibility and compliance based on metrics that are designed solely for accounting purposes.
36.3 Reference to the Conceptual Framework (amendments to IFRS 3 – Business Combinations)
In May 2020, the IASB issued amendments to IFRS 3 – Business Combinations (“IFRS 3”) to update references to the revised
Conceptual Framework without significantly changing its requirements. It also added an exception to the recognition principle of IFRS
3 to avoid the issue of potential day 2 gains or losses for some types of liabilities and contingent liabilities. Finally, it clarified existing
guidance by explicitly prohibiting the recognition of contingent assets in a business combination.
The amendments apply prospectively to annual periods beginning on or after January 1, 2022, with earlier application permitted. The
Company does not expect any significant impact from the adoption of these amendments.
36.4 Deferred tax related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued narrow scope amendments to IAS 12, to clarify how companies should account for deferred tax on
certain transactions and events that lead to the initial recognition of both an asset and a liability. The amendments narrow the scope
of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences,
such as leases and decommissioning obligations.
The amendments apply prospectively to annual periods beginning on or after January 1, 2023, with earlier application permitted. The
Company is currently assessing the impact of these amendments but does not expect any significant impact from their adoption.
INTACT FINANCIAL CORPORATION 89
Table of contents
Glossary
Glossary
This glossary includes IFRS and Non-IFRS financial measures, as well as other insurance-related terms used in our financial reports.
Acquisition, integration and restructuring costs
Acquisition costs – Include professional fees and stamp duties
related to the closing of an acquisition. Acquisition costs incurred in
connection with an acquired business do not represent an ongoing
operating expense of the business.
Integration costs – Includes restructuring costs related to an
acquisition, such as severances, retention bonuses, system
integration, the initial net impact of a reinsurance coverage for the
purpose of an acquisition, as well as changes in the fair value of the
contingent considerations. With respect to the RSA Acquisition, ADC
costs represent the net impact of a reinsurance coverage pursuant
to which a third-party reinsurer will assume 50% of negative reserve
development in excess of an agreed retention with respect to
certain RSA UK&I and other claims liabilities for accident years
2020 and prior. Integration costs incurred in connection with an
acquired business do not represent an ongoing operating expense
of the business.
Adjusted return on equity (AROE)1
Adjusted net income attributable to common shareholders for the last
12 months, divided by the Adjusted average common shareholders’
equity over the same period.
Adjusted total capital1
The sum of Debt outstanding, Equity attributable to shareholders,
Restricted Tier 1 notes and preferred shares instruments held
by subsidiaries, at the same date. The restricted Tier 1 notes and
preferred shares instruments held by subsidiaries are included
in the equity attributable to non-controlling interests.
Affiliated brokers
Brokers in which we hold an equity investment or provide financing.
Attributable to shareholders
Excludes Non-controlling interests (NCI).
Restructuring and other costs – Includes restructuring costs not
related to an acquisition and expenses related to the implementation
of significant new accounting standards.
Average investments
Mid-month average fair value of investments portfolio held during
the reporting period.
Adjusted average common shareholders’ equity1
Mean of Common shareholders’ equity at the beginning and end of the
period, adjusted on a prorata basis (number of days) for significant
capital transactions. Equity attributable to shareholders and Preferred
shares is determined in accordance with IFRS.
Adjusted debt-to-total capital ratio1
Debt outstanding (excluding hybrid debt) at the end of the period,
divided by Adjusted total capital.
Adjusted earnings per share (AEPS)1
Adjusted net income attributable to common shareholders, divided by
the WANSO.
Adjusted net income attributable to common shareholders1
Adjusted net income attributable to shareholders less preferred
share dividends.
Adjusted net income attributable to shareholders1
Net income attributable to shareholders, as reported under IFRS,
adjusted for the after-tax impact of acquisition-related items,
such as amortization of intangible assets recognized in business
combinations, as well as acquisition and integration costs.
Adjusted net income is net of net income (loss) attributable to
non-controlling interests.
Book value per share
Common shareholders’ equity divided by the number of common
shares outstanding at the same date.
Book value per share (excluding AOCI)1
Common shareholders’ equity (excluding AOCI) divided by the number
of common shares outstanding at the same date.
Case reserves
The liability established to reflect the estimated cost of unpaid claims
that have been reported and claims expenses that the insurer will
ultimately be required to pay.
Catastrophe losses (CAT losses)
Any one claim, or group of claims, equal to or greater than a
predetermined CAT threshold, before reinsurance, related to a
single event for the current accident year. Effective July 1, 2021, our
CAT threshold is as follows by segment: P&C Canada: $10 million,
P&C UK&I: £7.5 million and P&C US: US$5 million. Reported CAT
losses can either be weather-related or not weather-related and
exclude those from exited lines.
CAT loss ratio
Net current year CAT losses plus net reinstatement premiums,
expressed as a percentage of Operating NEP before the impact of
reinstatement premiums.
1 These are non-IFRS financial measures, which do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to similar measures presented by other companies.
232
Intact Financial Corporation Annual Report 2021 Table of contents
Glossary
Claims liabilities
Technical accounting provisions comprising case reserves, claims
incurred but not reported by policyholders (IBNR), and a risk margin
as required by accepted actuarial practice. Claims liabilities are
discounted to consider the time value of money, using a rate that
reflects the estimated market yield of the underlying assets backing
these claims liabilities at the reporting date.
Claims ratio1
Operating net claims expressed as a percentage of Operating NEP.
Common shareholders’ equity
Equity attributable to shareholders determined in accordance with
IFRS, excluding preferred shares at the end of a specific period.
Company action levels (CALs)
Thresholds below which regulator notification is required together
with a company action plan to restore capital levels. The average CAL
for all regulated Canadian insurance entities is 173% MCT. The CAT
varies by legal Canadian entities. The CAL is 200% RBC for regulated
insurance entities in the US and 120% SCR for those in the UK&I.
Direct premiums written (DPW)
The total amount of premiums for new and renewal policies written
during a specific period, as determined in accordance with IFRS.
Industry pools
Canadian operations – When certain automobile owners are unable
to obtain insurance via the voluntary insurance market in Canada, they
are insured via the Facility Association (“FA”). In addition, entities can
choose to cede certain risks to the FA administered Risk Sharing Pool
(“RSP”). The related risks associated with FA insurance policies and
policies ceded to the RSP are aggregated and shared by the entities
in the Canadian P&C insurance industry, generally in proportion to
market share and volume of business ceded to the RSP.
U.S. operations – As a condition of its license to do business in
certain states in the U.S., the Company is required to participate in
various mandatory shared market mechanisms commonly referred
to as residual or involuntary markets. Each state dictates the type of
insurance and the level of coverage that must be provided.
Interest rate hedge ratio
A ratio calculated by the Company as the sum of the dollar duration
of the pension asset portfolio divided by the dollar duration of the
registered pension plans’ obligation. An interest rate hedge ratio
below 100% indicates that funded status of the pension plans would
increase if government bond yields rise, all else equal.
Large loss
A single claim, which is considered significant but that is smaller than
the CAT threshold.
Distribution income1
Includes operating income before interest and taxes from our
consolidated brokers, broker associates, Intact Public Entities,
On Side Restoration, Coast Underwriters and Johnson Group Benefits.
Market-based yield
Annualized total pre-tax investment income (before expenses),
divided by the weighted-average investments.
Earnings per share (EPS)
Net income attributable to common shareholders divided by the
WANSO, as reported in the Consolidated statements of income.
Expense ratio1
Operating net underwriting expenses, expressed as a percentage
of Operating NEP.
Frequency (of claims)
Average number of claims reported in a specific period.
Full-time equivalent number of employees
A unit of measurement equivalent to an employee with a full-time
workload. If two employees each have a 50% workload, they would
represent one full-time equivalent employee.
Funding ratio
Pension plan assets expressed as a percentage of funded
plans’ obligations.
Incurred but not reported (IBNR) claims reserve
Reserves for estimated claims that have been incurred but
not reported by policyholders, including a reserve for future
developments on claims which have been reported.
Market yield adjustment (MYA)
Claims liabilities are discounted at the estimated market yield of the
assets backing these liabilities. The impact of changes in the discount
rate used to discount claims liabilities based on the change in the
market-based yield of the underlying assets is referred to as MYA.
MYA is included in Net claims incurred under IFRS.
Minimum capital test (“MCT”)
Ratio of total capital available to total capital required, as defined by
the Office of the Superintendent of Financial Institutions (OSFI) and
the Autorité des marchés financiers (AMF).
Net current year CAT losses (Net CAT losses)
Current accident year Catastrophe losses, net of reinsurance, excluding
those from exited lines.
Net earned premiums (NEP)
Net premiums written recognized for accounting purposes as revenue
during a specific period, including net reinstatement premiums, as
determined in accordance with IFRS.
Net income attributable to common shareholders
Net income attributable to shareholders, as reported under IFRS,
less preferred share dividends.
1 These are non-IFRS financial measures, which do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to similar measures presented by other companies.
233
Intact Financial Corporation Annual Report 2021 Table of contents
Glossary
Net operating income (NOI)1
Net income attributable to shareholders, as reported under IFRS,
excluding the after-tax impact of Non-operating results. NOI is
presented net of Net income attributable to non-controlling interests.
Operating DPW growth in constant currency1
Operating DPW growth, excluding the impact of foreign currency
fluctuations, calculated by applying the exchange rate in effect for the
current period results to the results of the previous year.
Net operating income attributable to common shareholders1
Net operating income, less preferred share dividends.
Net operating income per share (NOIPS)1
Net operating income attributable to common shareholders, divided
by the WANSO.
Non-catastrophe weather event
A group of claims, which is considered significant, but that is smaller
than the catastrophe threshold, related to a single weather event.
Non-operating pension expense
Difference between the asset return (interest income on plan assets),
calculated using the expected return on plan assets versus the IFRS
discount rate on Intact’s Canadian pension plan assets. The expected
return better reflects our operating performance given our internal
investment management expertise and the composition of our pension
asset portfolio. The non-operating pension expense is included in
Net claims incurred and Underwriting expenses under IFRS.
Non-operating results1
Include elements that are not representative of our operating
performance because they relate to special items, bear significant
volatility from one period to another, or because they are not part of
our normal activities. These include the Amortization of intangible
assets recognized in business combinations, Acquisition, integration
and restructuring costs, Net gains (losses), Non-operating pension
expense, Market yield adjustment on underwriting, Underwriting
results from exited lines, as well as other costs or revenues that are
not representative of our operating performance.
Non-weather catastrophe losses
Catastrophe losses mostly related to large commercial losses
(including non-weather-related fires), surety and liability losses,
as well as direct losses related to the COVID-19 crisis.
Normal course issuer bid (“NCIB”)
A program for the repurchase of the Company’s own common shares,
for cancellation through a stock exchange that is subject to the various
rules of the relevant stock exchange and securities commission.
Operating combined ratio1
The sum of the Claims ratio and the Expense ratio. An operating
combined ratio below 100% indicates a profitable underwriting result.
An operating combined ratio over 100% indicates an unprofitable
underwriting result.
Operating direct premiums written (Operating DPW)1
Direct premiums written normalized for the effect of multi-year policies,
excluding the impact of industry pools, fronting and exited lines.
This measure matches operating direct premiums written to the year
in which coverage is provided, whereas under IFRS, the full value of
multi-year policies is recognized in the year the policy is written.
Operating income tax expense (benefit)1
Includes the impact of income taxes from our broker associates, which
are accounted for using the equity method (net of tax) under IFRS.
Operating net claims1
Claims incurred, net of reinsurance (as determined in accordance with
IFRS), excluding the Impact of MYA on underwriting results, adjustment
for Non-operating pension expense and net claims from exited lines.
Operating net earned premiums (Operating NEP)1
NEP, excluding net earned premiums from exited lines.
Operating net premiums written (Operating NPW)1
Net premiums written normalized for the effect of multi-year policies,
excluding NPW from exited lines.
Operating net underwriting expenses1
Underwriting expenses, net of reinsurance and other underwriting
revenues, including commissions, premium taxes and general
expenses related to underwriting activities but excluding the
adjustment for non-operating pension expense and underwriting
expenses from exited lines.
Operating return on equity (OROE)1
Net operating income attributable to common shareholders for the last
12 months, divided by the Adjusted average common shareholders’
equity (excluding accumulated other comprehensive income) over
the same period.
Other operating income (expense)1
Includes general corporate expenses related to the operation of the
group and our public company status, consolidation adjustments,
and other operating items.
Policies in force
The number of insurance policies in effect at a specific date. If two or
more separate risks are covered under the same insurance policy, this
counts as one policy in force. Policies in force exclude pet insurance
given its low value.
Pre-tax income1
Income before income taxes, as reported under IFRS, excluding
income taxes from our broker associates, which are accounted for
using the equity method under IFRS. In the MD&A, income taxes from
our broker associates are included in Total income tax expense (benefit).
In the Financial statements, the share of profit (loss) from investments
in associates and joint ventures is presented net of taxes.
1 These are non-IFRS financial measures, which do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to similar measures presented by other companies.
234
Intact Financial Corporation Annual Report 2021 Table of contents
Glossary
Structured settlements
Periodic payments to claimants for a determined number of years or
until death, typically in settlement for a claim under a liability policy,
usually funded through the purchase of an annuity.
Total capital margin
Total capital margin includes capital in excess of the internal CALs
for insurance entities in Canadian, US, UK and other internationally
regulated jurisdictions and the funds held in non-regulated entities
less any ancillary own funds committed by the Company.
Total finance costs1
Finance costs, as reported under IFRS, adjusted to include finance
costs from our broker associates, which are accounted for using
the equity method under IFRS (included in Share of profit from
investments in associates and joint ventures under IFRS).
Total income tax benefit (expense)1
Income tax benefit (expense), as reported under IFRS, adjusted to
include income taxes from our broker associates, which are accounted
for using the equity method under IFRS.
Underlying current year loss ratio1
Operating net claims, excluding Current year CAT losses and Prior year
claims development, expressed as a percentage of Operating NEP
before reinstatement premiums.
Underwriting income1
Operating NEP less Operating net claims and Operating net underwriting
expenses for a specific period. Underwriting income (loss) represents
Net earned premiums, Other underwriting revenues, Net claims
incurred and Underwriting expenses, all of which are reported
under IFRS, excluding the impact of MYA on underwriting results,
non-operating pension expense and underwriting results from
exited lines.
Underwriting results from exited lines
Included the results of US Commercial’s Business Programs,
Architects and Engineers, Healthcare (effective July 1, 2019), BC auto
exit (effective in Q4-2020), as well as UK & International (UK&I) exited
lines as of the closing date.
WANSO
Weighted-average number of common shares outstanding on a daily
basis during a specific period.
Written insured risks
The number of vehicles in personal automobile insurance and the
number of premises in personal property insurance written for a
specific period. Written insured risks exclude pet insurance given its
low value.
Pre-tax operating income (PTOI)1
Represents Income before income taxes, as reported under IFRS,
including the Share of income tax expense (benefit) of broker
associates (accounted for using the equity method – net of tax – under
IFRS), and excluding the pre-tax impact of Non-operating results.
Comprises the following items: Underwriting income, Net investment
income, Distribution income, Total finance costs and Other operating
income (expense).
Prior year claims development (PYD)1
Change in total prior year claims liabilities during a specific period,
net of reinsurance, excluding the PYD related to exited lines. A
decrease to claims liabilities is referred to as favourable prior year
claims development. An increase in claims liabilities is referred
to as unfavourable prior year claims development.
PYD ratio1
PYD, expressed as a percentage of Operating NEP.
Regulatory capital ratios
Minimum capital test (as defined by the Office of the Superintendent
of Financial Institutions and the Autorité des marchés financiers in
Canada), Risk-based capital requirements (as defined by the National
Association of Insurance Commissioners in the US), and Solvency
capital requirement (as defined by the Prudential Regulation Authority
in the UK&I).
Reinstatement premium
Premium payable to restore the original reinsurance policy limit as a
result of a reinsurance loss payment under a catastrophe coverage.
Reinstatement premiums are reported in Net earned premiums
under IFRS.
Reinsurer
An insurance company that agrees to indemnify another insurance
or reinsurance company, the ceding company, against all or a portion
of the insurance or reinsurance risks underwritten by the ceding
company, under one or more policies.
Return on equity (ROE)
Net income attributable to common shareholders for the last 12 months,
divided by the Adjusted average common shareholders’ equity over the
same period.
Risk-based Capital (RBC)
Risk-based capital, as defined by the National Association of Insurance
Commissioners (NAIC) in the U.S.
Severity (of claims)
Average cost of a claim calculated by dividing the total cost of claims
by the total number of claims.
Solvency Capital Requirement ratio (SCR)
Ratio of Eligible Own Funds to Solvency Capital Requirement as
defined under Solvency II and regulated by the Prudential Regulation
Authority in the UK.
1 These are non-IFRS financial measures, which do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to similar measures presented by other companies.
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Intact Financial Corporation Annual Report 2021 Table of contents
Five-Year Financial History
Five-Year Financial History
This table contains non-GAAP and other financial measures. Refer to Section 38 – Non-GAAP and other financial measures of the MD&A
for the year-ended December 31, 2021 for further details.
Consolidated performance
Operating direct premiums written1
Direct premiums written
Operating net earned premiums1
Net earned premiums
Underwriting income (loss)1
Net investment income
Distribution income1
Net operating income1
Non-operating gains (losses)1
Total effective income tax rate1
Net income
2021
2020
2019
2018
2017
3-year
average
5-year
average
10-year
average
17,283
17,994
16,043
16,238
1,787
706
362
2,070
(70)
19.6%
2,088
12,039
12,143
11,220
11,241
1,227
577
275
1,471
(535)
21.7%
1,082
11,049
11,019
10,211
10,275
465
576
209
905
(257)
11.3%
754
10,090
10,125
9,715
9,765
474
541
175
839
(147)
21.4%
707
8,730
8,748
8,530
8,558
486
448
158
771
(36)
17.0%
792
13,457
13,719
12,491
12,585
1,160
620
282
1,482
(287)
17.5%
1,308
11,838
12,006
11,144
11,215
888
570
236
1,211
(209)
18.2%
1,085
9,693
9,761
9,199
9,217
655
498
171
952
(165)
18.1%
845
Operating combined ratio1
88.8%
89.1%
95.4%
95.1%
94.3%
91.1%
92.5%
93.4%
Per share measures ($)
Net operating income per share1
Earnings per share
Book value per share
Dividend per common share
Return on equity
Operating return on equity1
Adjusted return on equity1
Return on equity
12.41
12.40
82.34
3.40
17.8%
21.0%
17.0%
9.92
7.20
58.79
3.32
18.4%
15.0%
12.8%
6.16
5.08
53.97
3.04
12.5%
11.4%
10.0%
5.74
4.79
48.73
2.80
12.1%
11.8%
9.9%
5.60
5.75
48.00
2.56
12.9%
13.0%
12.8%
9.50
8.23
65.03
3.25
16.2%
15.8%
13.3%
7.97
7.04
58.37
3.02
14.7%
14.4%
12.5%
6.54
5.75
47.91
2.48
14.7%
14.1%
12.4%
1 These are non-GAAP and other financial measures. See glossary on page 232 for definitions.
236
Intact Financial Corporation Annual Report 2021 Table of contents
Five-Year Financial History
2021
2020
2019
2018
2017
3-year
average
5-year
average
10-year
average
12,023
11,450
86.7%
10,216
9,633
88.0%
9,399
8,775
95.9%
4,067
3,818
97.7%
2,337
2,184
92.5%
2,995
2,773
96.0%
–
–
–
–
–
–
–
–
–
8,601
8,332
95.2%
3,750
3,727
99.5%
2,186
2,098
88.3%
2,665
2,507
94.6%
–
–
–
–
–
–
–
–
–
8,423
8,204
94.2%
3,818
3,782
101.7%
2,135
2,040
89.1%
2,470
2,382
86.5%
–
–
–
–
–
–
–
–
–
10,546
9,953
90.2%
4,411
4,277
90.4%
2,676
2,517
86.0%
3,460
3,159
93.2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
9,732
9,279
92.0%
4,160
4,068
94.5%
2,470
2,338
87.1%
3,103
2,873
92.2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4,322
4,187
86.6%
2,586
2,444
81.7%
3,308
3,002
95.1%
–
–
–
–
–
–
–
–
–
1,823
1,582
94.9%
1,650
1,431
93.2%
1,489
1,380
94.8%
307
326
97.4%
1,820
1,555
93.7%
1,451
1,274
94.6%
–
–
–
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
8,640
8,267
93.1%
3,803
3,736
95.1%
2,114
1,990
89.9%
2,726
2,540
92.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4,843
4,825
86.9%
3,104
2,924
83.8%
4,076
3,701
88.6%
2,538
2,319
93.4%
1,099
1,054
97.0%
1,439
1,265
90.5%
1,988
1,652
92.9%
734
608
90.7%
66,349
2,891
23.0%
35,119
2,729
24.1%
32,292
1,222
21.3%
28,461
1,333
22.0%
27,838
1,135
23.1%
44,587
2,281
22.8%
38,012
1,862
22.7%
29,487
1,274
20.4%
Underwriting performance
P&C Canada
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal auto
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal property
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines – Canada
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
P&C UK&I (in Canadian dollars)3
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal lines (in Canadian dollars)3
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines (in Canadian dollars)3
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines – U.S. (in Canadian dollars)2
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Corporate & Other (RSA June 2021)
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Financial condition
Total assets
Total capital margin
Adjusted debt-to-total capital ratio1
1 These are non-GAAP and other financial measures. See glossary on page 232 for definitions.
2 2017 only includes Q4 results.
3 2021 only includes Q3 & Q4 results.
237
Intact Financial Corporation Annual Report 2021 Table of contents
Three-Year Quarterly
Financial History
Three-Year Quarterly Financial History
This table contains non-GAAP and other financial measures. Refer to Section 38 – Non-GAAP and other financial measures of the MD&A
for the year-ended December 31, 2021 for further details.
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
2021
2020
2019
Q1
Consolidated performance
Operating direct premiums written1
Direct premiums written
Operating net earned premiums1
Net earned premiums
Underwriting income (loss)1
Net investment income
Distribution income1
Net operating income1
Non-operating gains (losses)1
Total effective income tax rate1
Net income
5,017
5,318
4,931
5,003
600
220
77
679
17
5,447
5,719
4,871
4,950
426
191
105
519
(265)
2,872
2,928
2,879
2,899
415
143
72
467
(125)
20.1% 24.8% 17.0% 18.9% 20.4%
378
2,522
2,543
2,759
2,777
297
141
62
357
172
4,297
4,414
3,482
3,508
464
154
118
515
6
514
300
701
573
3,264
3,269
2,863
2,864
369
143
81
411
(114)
22.9%
334
3,382
3,389
2,712
2,712
284
141
78
350
(130)
19.1%
263
2,521
2,557
2,766
2,766
159
150
44
243
(166)
27.9%
107
2,670
2,696
2,692
2,730
229
142
45
303
(109)
13.4%
240
3,012
2,996
2,581
2,604
198
146
56
277
(119)
20.8%
187
3,152
3,119
2,500
2,501
75
148
72
212
(62)
2,215
2,208
2,438
2,440
(37)
140
36
113
33
15.0% (14.0)%
159
168
Operating combined ratio1
87.8% 91.3% 86.7% 89.3% 85.6%
87.1%
89.5%
94.3%
91.5%
92.3%
97.0% 101.5%
Per share measures ($)
Net operating income per share1
Earnings per share
Book value per share
Dividend per common share
Return on equity
Operating return on equity1
Adjusted return on equity1
Return on equity
3.78
3.85
82.34
0.91
2.87
1.60
79.21
0.83
3.26
3.59
77.67
0.83
2.40
3.51
62.19
0.83
3.18
2.55
58.79
0.83
2.78
2.25
56.22
0.83
2.35
1.74
53.95
0.83
1.61
0.66
51.71
0.83
2.08
1.63
53.97
0.76
1.91
1.26
51.20
0.76
1.44
1.13
49.90
0.76
0.73
1.06
50.21
0.76
17.8% 18.3% 19.8% 19.0% 18.4%
21.0% 20.2% 22.9% 20.1% 15.0%
17.0% 16.5% 19.6% 17.6% 12.8%
16.9%
13.4%
11.5%
15.6%
12.0%
10.1%
14.0%
11.0%
9.2%
12.5%
11.4%
10.0%
12.4%
11.6%
10.2%
12.0%
12.1%
10.6%
11.9%
12.3%
10.6%
1 These are non-GAAP and other financial measures. See glossary on page 232 for definitions.
238
Intact Financial Corporation Annual Report 2021 Table of contents
Three-Year Quarterly
Financial History
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
2021
2020
2019
Q1
Underwriting performance
P&C Canada
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal auto
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal property
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines – Canada
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
2,471
3,051
3,283
2,446
2,492
3,296
84.4% 89.2% 85.0% 88.2% 84.0%
2,125
2,382
3,564
3,280
984
1,251
1,234
1,087
1,390
1,048
87.5% 85.1% 82.4% 93.4% 82.6%
1,544
1,404
814
983
831
838
623
630
79.5% 93.5% 83.3% 77.4% 73.2%
518
621
965
828
790
637
864
1,218
729
1,068
84.3% 91.2% 89.6% 90.1% 95.3%
1,055
1,048
1,010
807
793
778
2,724
2,479
86.0%
2,896
2,330
89.0%
2,125
2,378
93.3%
2,328
2,302
92.0%
2,491
2,234
91.8%
1,853
2,727
2,084
2,155
97.4% 102.9%
1,214
1,081
84.9%
1,242
990
84.7%
882
1,029
94.6%
941
1,007
96.5%
1,126
962
93.4%
1,204
939
796
910
99.5% 101.9%
719
620
83.7%
753
601
88.6%
491
593
81.8%
566
566
82.0%
653
555
89.1%
679
537
99.6%
439
526
99.8%
791
778
89.4%
901
739
752
756
95.1% 100.7%
821
729
93.5%
712
717
91.8%
844
679
618
648
92.8% 106.7%
P&C UK&I (in Canadian dollars)
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
1,264
1,274
1,145
1,174
93.0% 93.9%
Personal lines (in Canadian dollars)
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
517
516
582
538
96.1% 97.9%
757
629
682
636
90.4% 90.5%
Commercial lines
(in Canadian dollars)
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines – U.S.
(in Canadian dollars)
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Corporate & Other (RSA June 2021)
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Financial condition
Total assets
Total capital margin
Adjusted debt-to-total capital ratio1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
460
485
401
432
92.5% 92.8% 90.3% 96.3% 92.0%
512
379
619
415
397
373
540
383
94.5%
486
381
396
386
93.2% 100.1%
342
389
88.8%
521
346
95.9%
425
343
94.8%
362
353
94.0%
–
–
–
–
–
–
734
608
90.7%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35,119
65,491
66,349
2,729
2,891
2,558
23.0% 23.9% 24.1% 22.5% 24.1%
35,264
3,008
66,173
2,693
1 These are non-GAAP and other financial measures. See glossary on page 232 for definitions.
34,110
1,871
21.2%
33,184
1,707
22.1%
32,229
1,485
24.1%
32,292
1,222
21.3%
30,103
1,116
19.3%
29,580
1,269
21.6%
28,806
1,367
21.5%
239
Intact Financial Corporation Annual Report 2021 Table of contents
Forward Looking Statements
Forward Looking Statements
Certain of the statements made in this annual report are forward-looking statements. Unless otherwise indicated, all forward-looking statements
in this annual report are made as at March 31, 2022, and are subject to change after that date. This annual report contains forward-looking
statements with respect to objectives regarding return on equity, net operating income per share, combined ratio, underwriting performance,
achievement of net-zero greenhouse gas emissions, our market position in the areas in which we operate, our specialty solutions business, the
realization of the expected strategic, financial and other benefits of the acquisition and integration of RSA Insurance Group PLC (“RSA”), and with
respect to the impact of COVID-19 and related economic conditions on the Company’s operations and financial performance.
Forward-looking statements are based on estimates and assumptions made by management based on management’s experience and perception
of historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in
the circumstances. In addition to other estimates and assumptions which may be identified herein, estimates and assumptions have been made
regarding, among other things, the realization of the expected strategic, financial and other benefits of the acquisition and integration of RSA and
economic and political environments and industry conditions. There can also be no assurance that the strategic and financial benefits expected
to result from the acquisition and integration of RSA will be realized. As a result, we cannot guarantee that any forward-looking statement will
materialize and we caution you against unduly relying on any of these forward-looking statements. Except as may be required by Canadian
securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in this annual report, whether
as a result of new information, future events or otherwise. Please read the cautionary note at the beginning of the annual MD&A herein.
Non-GAAP financial measures and Non-GAAP ratios (which are calculated using non -GAAP financial measures) do not have standardized
meanings prescribed by IFRS (or GAAP) and may not be comparable to similar measures used by other companies in our industry. Non-GAAP and
other financial measures are used by management and financial analysts to assess our performance. Further, they provide users with an enhanced
understanding of our financial results and related trends, and increase transparency and clarity into the core results of the business. Non-GAAP
financial measures and Non-GAAP ratios used in this Annual Report include measures related to our consolidated performance, our underwriting
performance and our financial strength. Please see Section 38 – Non-GAAP and other financial measures of our annual MD&A for further details.
Disclaimer: ®Intact Small Straight Lines Design, Intact Design, Intact Insurance Design, Intact Centre on Climate Adaptation, and Intact Ventures
are registered trademarks of Intact Financial Corporation. ®belairdirect. & Design is a registered trademark of Belair Insurance Company Inc.
used under license. ®Brokerlink & Design is a registered trademark of Brokerlink Inc. used under license. ™OneBeacon is a trademark of Intact
Insurance Group USA Holdings Inc. used under license. ®On Side Restoration & Design is a registered trademark of On Side Restoration Services
Ltd. used under license. All other trademarks are properties of their respective owners. ©2022 Intact Financial Corporation. All rights reserved.
240
Intact Financial Corporation Annual Report 2021 Table of contents
Shareholder and Corporate
Information
Shareholder and Corporate Information
Credit rating
IFC senior unsecured debt ratings
Intact U.S. (OneBeacon) senior unsecured debt ratings
RSA Insurance Group plc. senior unsecured debt ratings
IFC’s principal Canadian P&C insurance subsidiaries’ financial strength ratings
RSA Canadian entities’ financial strength ratings
Intact US (OneBeacon) US regulated entities’ financial strength ratings
RSA Insurance Group UK&I financial strength ratings
A.M. Best
DBRS
Moody’s
Fitch
a-
a-
not rated
A+
not rated
A+
A
A
A
A
AA(low)
AA(low)
AA(low)
AA(low)
Baa1
Baa2
Baa1
A1
A1
A2
A2
A-
A-
A-
AA-
AA-
AA-
AA-
DBRS has assigned a rating of “Pfd-2” with a Stable trend for the Non-cumulative Rate Reset Class A Series 1 preferred shares, Non-cumulative Rate Reset Class A Series 3 preferred shares, Non-cumulative
Class A Series 5 preferred shares, Non-cumulative Class A Series 6 preferred shares, Non-cumulative Class A Series 7 preferred shares, Non-cumulative Class A Shares Series 9 and Non-Cumulative
Class A Series 11 (the “Series 1 Preferred Shares”, “Series 3 Preferred Shares”, “Series 5 Preferred Shares”, “Series 6 Preferred Shares”, “Series 7 Preferred Shares”, “Series 9 Preferred Shares” and
“Series 11 Preferred Shares” respectively) issued on July 12, 2011, August 18, 2011, May 24, 2017, August 18, 2017, May 29, 2018, February 18, 2020 and March 15, 2022, respectively. Fitch Ratings has
assigned a rating of “BBB” with a Stable outlook to the Series 1 Preferred Shares, Series 3 Preferred Shares, Series 5 Preferred Shares, Series 6 Preferred Shares, Series 7 Preferred Shares, Series 9 Preferred
Shares and Series 11 Preferred Shares.
Toronto Stock Exchange (TSX) listings
Common Shares Ticker Symbol: IFC
Series 1 Preferred Shares Ticker Symbol: IFC.PR.A
Series 3 Preferred Shares Ticker Symbol: IFC.PR.C
Series 5 Preferred Shares Ticker Symbol: IFC.PR.E
Series 6 Preferred Shares Ticker Symbol: IFC.PR.F
Series 7 Preferred Shares Ticker Symbol: IFC.PR.G
Series 9 Preferred Shares Ticker Symbol: IFC.PR.I
Series 11 Preferred Shares Ticker Symbol: IFC.PR.K
Annual meeting of the shareholders
Date: Wednesday, May 11, 2022
Time: 1:00 p.m. (Eastern Time)
Place: Virtual-only meeting via live audio
webcast. The webcast will be available at
https://web.lumiagm.com/486784878.
Detailed information on how to participate in
the Meeting is included in our Management
Proxy Circular.
Version française
Il existe une version française du présent rapport
annuel à la section Investisseurs de notre site Web
www.intactfc.com/French/accueil/default.aspx.
Les personnes intéressées peuvent obtenir
une version imprimée en envoyant un courriel
à ir@intact.net.
Transfer agent and registrar
Computershare Investor Services Inc.
100 University Avenue, 8th Floor, North Tower
Toronto, Ontario M5J 2Y1
1 800 564-6253
Auditors
Ernst & Young LLP
Earnings conference call dates
Q1 – May 11, 2022
Q2 – July 29, 2022
Q3 – November 9, 2022
Q4 – February 8, 2023
Investor inquiries
Shubha Khan, Vice President, Investor Relations
1 416 341-1464, ext. 41004
shubha.khan@intact.net
Media inquiries
Kate Moseley-Williams, Manager, Communications
1 416 341-1464, ext. 42515
kate.moseley.williams@intact.net
Dividend reinvestment
Shareholders can reinvest their common share
dividends of Intact Financial Corporation on a
commission-free basis either through their
broker under a Dividend Reinvestment Plan
(DRIP) administered on behalf of the Company
by our transfer agent, Computershare Investor
Services Inc., or via the Co-Operative Investing
Service operated by Canadian ShareOwner
Investments Inc. Full details can be obtained
by visiting the “Investors” section of the
www.intactfc.com website.
Eligible dividend designation
For purposes of the enhanced dividend tax credit
rules contained in the Income Tax Act (Canada) and
any corresponding provincial and territorial tax
legislation, all dividends (and deemed dividends)
paid by Intact Financial Corporation to Canadian
residents on our common and preferred shares
after December 31, 2005, are designated as
eligible dividends. Unless stated otherwise, all
dividends (and deemed dividends) paid by the
Company hereafter are designated as eligible
dividends for the purposes of such rules.
Information for shareholders outside of Canada
Dividends paid to residents of countries with
which Canada has bilateral tax treaties are
generally subject to the 15% Canadian non-
resident withholding tax. There is no Canadian
tax on gains from the sale of shares (assuming
ownership of less than 25%) or debt instruments
of the Company owned by non-residents not
carrying on business in Canada. No government in
Canada levies estate taxes or succession duties.
Common share dividend history
Common share prices and volume
Record
Payable
Amount
Dec. 15, 2021
Dec. 31, 2021
Sept. 15, 2021
Sept. 30, 2021
June 15, 2021
Mar. 15, 2021
Dec. 15, 2020
June 30, 2021
Mar. 31, 2021
Dec. 31, 2020
Sept. 15, 2020
Sept. 30, 2020
June 15, 2020
Mar. 16, 2020
Dec. 16, 2019
June 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Sept. 16, 2019
Sept. 30, 2019
June 14, 2019
Mar. 15, 2019
June 28, 2019
Mar. 29, 2019
$0.91
$0.83
$0.83
$0.83
$0.83
$0.83
$0.83
$0.83
$0.76
$0.76
$0.76
$0.76
2021 YE
2021 Q4
2021 Q3
2021 Q2
2021 Q1
2020 YE
2020 Q4
2020 Q3
2020 Q2
2020 Q1
2019 YE
2019 Q4
2019 Q3
2019 Q2
2019 Q1
High
$178.28
$173.03
$178.28
$172.24
$157.36
$157.74
$157.74
$147.81
$143.10
$157.65
$140.96
$140.96
$133.97
$124.32
$114.13
Low
$140.50
$158.00
$164.82
$154.29
$140.50
$104.81
$131.94
$128.61
$117.54
$104.81
$96.37
$131.64
$122.68
$107.00
$96.37
Close
$164.42
$164.42
$167.48
$168.41
$154.00
$150.72
$150.72
$142.58
$129.21
$121.63
$140.42
$140.42
$133.34
$121.02
$113.08
TSX Volume
67,892,949
15,581,571
18,209,154
17,839,784
16,262,440
88,078,150
18,551,508
16,552,737
25,805,748
27,168,157
65,605,643
16,380,891
16,017,749
17,278,057
15,928,946
Data items are not adjusted for stock splits and consolidations. This data is provided “AS IS”. TSX, its affiliates and their respective service providers, suppliers and licensors: (i) make no warranties or
representations of any kind, express, implied or otherwise regarding this data or its accuracy, completeness or timeliness, (ii) disclaim the implied warranties of merchantability and fitness for a particular
purpose, and (iii) assume no liability in making this data available.
241
Intact Financial Corporation Annual Report 2021 Why
Invest
in Intact
Largest provider
of P&C insurance in Canada, a
leading provider of global specialty
insurance, and a leader in personal and
commercial lines in the UK and Ireland
Consistently
outperforms industry
leveraging disciplined underwriting,
scale advantage and in-house claims
expertise
Track record
of strong capital
generation, earnings
growth and annual
dividend increases
Proven industry
consolidator
with 18 successful P&C
acquisitions since 1988
Financial strength
reinforced by prudent risk management
and capital levels well above regulatory
requirements
Attracts and retains
Top talent
as a best employer
See the full suite
of our reports on
intactfc.com
Intact Financial Corporation
700 University Avenue
Toronto, Ontario M5G 0A1