Make it
Intact
INTACT FINANCIAL CORPORATION
ANNUAL REPORT 2022
Our Purpose
We are here to help people, businesses and society
prosper in good times and be resilient in bad times.
Our Values
Our Values guide our decision-making, keep us grounded,
help us outperform and are key to our success.
Integrity
Be honest, open
and fair
Set high standards
Stand up for what
is right
Respect
Be kind
See diversity as a
strength
Be inclusive and
collaborate
Excellence
Generosity
Help others
Protect the
environment
Make our
communities more
resilient
Customer-driven
Listen to our
customers
Make it easy,
find solutions
Act with discipline and
drive to outperform
Embrace change,
improve every day
Deliver second-to-
none experiences
Celebrate success, yet
remain humble
Our Core Belief
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
Who We Are
Our Objectives and Strategic Roadmap
2022 Highlights
CEO’s Letter
Chairman’s Letter
Our Board and Leadership
1
2
3
6
16
18
MD&A and Financial Statements
Glossary
Financial History
Forward Looking Statements
Shareholder and Corporate Information
20
242
246
250
251
Table of contents
Who We Are
Who We Are
Intact is the largest provider of Property & Casualty insurance in Canada,
a leading specialty lines insurer with international expertise
and a leader in personal and commercial lines in the U.K. and Ireland.
Largest
provider of
P&C insurance
in Canada
U.K. & Ireland
leading
personal and
commercial
lines insurer
Leading Global
Specialty lines
platform
Our business has grown organically and through acquisitions
to over $21 billion of total annual operating Direct Premiums Written1.
UK&I
22%
U.S.
11%
Our P&C
Segments
Specialty lines
26%
Personal auto
28%
Our Lines
of Business
Canada
67%
Commercial lines
23%
Personal property
23%
We have a global team of 29,000 employees
delivering best-in-class operations through a diversified business offering.
1 This is a non-GAAP financial measure.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Our Objectives and Strategic Roadmap
What We Aim To Achieve
Our strategic objectives define what we aim to achieve: placing customers at the centre of
everything we do, making sure our employees are engaged and proud to work at Intact, and being
recognized as leaders in building resilient communities and industry outperformance.
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 5 pts
Grow NOIPS 10% yearly over time
Our Strategic Roadmap
Our strategy is focused on these five big ideas.
Together, they help us achieve our goals and remain successful.
Expand our leadership
position in Canada
Strengthen our leading
position in U.K. & Ireland
Build a Specialty
Solutions leader
Leading customer
experience
3 out of 4 customers
digitally engaged
Leading customer
experience
Scale in
distribution
Further
consolidation
in Canada
Optimize
Underwriting for
outperformance
Expand broker (CL)
and direct (PL)
distribution
Responsive and
agile technology
and operations
Specialized
customer value
proposition
Profitable &
growing mix
of verticals
Expand
distribution
Consolidate
fragmented
market
Outperform industry combined ratio by 5 pts
Low 90s combined ratio
Sub-90 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 ENGTH EN OUR OUTPERFORMANCE MI NDSET
Invest in our people
Be a best employer
Be a destination for top talent & experts
Enable our people to thrive
*Based on a weighted-average ROE benchmark of leading P&C insurers in Canada, the U.S. and the U.K.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022
500 bps
ANNUAL
ROE
OUTPERFORMANCE*
Table of contents
2022 Highlights
2022 Strategic Highlights
70% of customers in Canada who had a transaction
with us are our advocates
90% of brokers in North America intend to continue
doing business with us
Our customers
are our
ADVOCATES
2022 Kincentric Best Employer:
• in Canada for the 7th consecutive year
• in the U.S. for the 4th consecutive year
Our people are
ENGAGED
Representing the communities we serve
42%
13%
of women globally and
more than
53%
of women and
20%
46%
of women on IFC
Board of Directors
of Black and People of Colour
in North America at Vice
President and higher positions
Net Operating Income Per Share1 of
Return on Equity1, 2 outperformance of
$11.88
10.3 points
with a 5-year NOIPS CAGR of 16%
in 2022
More than 1 in 23
stakeholders believe that Intact is a leader in helping
build resilient communities in Canada
23% reduction
in our overall operations emissions4 from 2019
of Black and People of Colour
in IFC Canada and U.S. in
managerial positions
Our company is
one of the
MOST RESPECTED
1 These are non-GAAP financial measures. See Section 36 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable GAAP measures.
2
3
4
Intact’s ROE corresponds to an adjusted return on equity (AROE), which is more comparable to the industry.
Intact’s Resilience Barometer, launched in Canada this year, measures our social impact performance through feedback from key stakeholders.
Including Scope 1, Scope 2 and Scope 3 business travel.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
2022 Highlights
2022 Financial Highlights
$11.88
NOIPS1
$13.46
EPS
$80.33
BVPS
14.3%
OROE1
19.5%
AROE1
16.5%
ROE1
$21.1B
Operating DPW1
$927M
Operating Net
Investment income1
91.6%
$437M
Operating Combined Ratio1
Distribution Income1
Strong balance sheet
21.2%
$2.4B
Adjusted Debt-to-Total Capital Ratio1
Total Capital Margin
Financial Strength Credit Ratings
A+
A.M. Best
AA (low)
DBRS
AA-
Fitch
A1
Moody’s
1 These are non-GAAP financial measures. See Section 36 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable GAAP measures.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
2022 Highlights
A Strong Track Record
Net operating income per share1 over time
NOIPS
$15
$12
$9
$6
$3
0
$11.88
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
24%
16%
3-year
CAGR
5-year
CAGR
9%
10-year
CAGR
Over the past three and
five years, our NOIPS grew
at a CAGR of 24% and 16%
respectively, and is expected
to grow by 10% per year,
over time.
ROE1,2 outperformance
ROE outperformance versus the industry
15
12
9
6
3
0
10.33
pts
Over the last decade,
we exceeded industry
ROE by a yearly average
of 6.8 points.
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total shareholder return4
IFC
TSX 60
300%
250%
200%
150%
100%
50%
0%
286%
123%
10-year Annualized
Total Shareholder Return
14%
IFC
8%
TSX 60
18 consecutive dividend
increases since our IPO, and
total shareholder return
outpacing the TSX 60 by
600 basis points per year,
over the last 10 years.
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Intact’s ROE corresponds to an adjusted return on equity (AROE), which is more comparable to the industry.
1 These are non-GAAP financial measures. See Section 36 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable GAAP measures.
2
3 2022 ROE outperformance includes estimated U.K. industry ROE.
4 This graph compares the total cumulative return of $100 invested in Common Shares of the Company with the total cumulative return of the S&P/TSX, assuming the reinvestment of dividends.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022
Table of contents
CEO’s Letter
CEO’s Letter
In 2022 Intact delivered solid results.
We executed our game plan against a
backdrop of inflation, socio-economic
and geopolitical challenges, and the
increasing impacts of extreme weather.
More importantly, these factors have affected people, businesses
and communities deeply over the last few years – including our own
employees and customers. Our core purpose is to help and that’s
what we’ve tried to do.
I was again reminded this year that our team really shines in times of
adversity. This period has helped us redefine resilience – reinforcing
our ability to withstand volatility, help our customers and grow
the business. Our team of 29,000 people is guided by a common
purpose and a set of core values that permeate every decision we
make. We share a belief that we are here to help our customers in
good times and bad.
Together, we’ve built an organization with incredible spirit, one that
is transforming a strong Canadian champion into an international
force. The Intact spirit is one that takes nothing for granted – we
celebrate our achievements, but we are never satisfied. We
benchmark against the best in the world and invest accordingly.
We focus on what we are good at and try to get better.
It’s in that spirit that we’ve centred our game plan on helping
society while finding ways to grow. We are at a pivotal time. We
must take a whole-of-society approach to tackle issues such as
climate change, poverty and inequality. To do so requires strong
leadership in the business community. Solving these issues does
not fall solely on the shoulders of government.
With that context in mind, I want to spend time in this year’s letter
to explore deep trends and key socio-economic challenges and
their impacts on our customers and communities. I will also share
what resiliency means to us, why it is core to helping, and how we
are uniquely positioned to lead.
Tackling these challenges from a business perspective requires
strong financial performance. Despite the headwinds, we
generated a 21% total return for our shareholders last year when
the TSX 60 was down 6% on the same basis. More importantly, our
long-term track record speaks for itself: we have generated 14%
total shareholder return on average per year over the past decade,
outperforming the TSX 60 by 600 basis points. I feel very strongly
that we can help and win.
Charles Brindamour
Chief Executive Officer
Contents:
7
8
10
13
2022
Performance
Highlights
How We See
the World
What Intact is Aiming
to Achieve and How
We are Doing It
Building Resilience
and Transitioning to a
Low Carbon Economy
15
Conclusion
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
2022 Performance Highlights
Building on our track record as a resilient business, our solid results in 2022
enabled us to increase the common share dividend for the eighteenth consecutive year.
We wrapped up the year with positive top line momentum. Premiums1
increased 23%, bolstered by the RSA acquisition. Excluding this and
the impact of exited lines, premium growth was 5%, led mainly by our
continued rate momentum.
We ended the year in a strong financial position, with $2.4 billion
of total capital margin and solid regulated capital ratios in all
jurisdictions. We are well positioned to absorb volatility in the external
environment and pursue future growth opportunities.
The 2022 operating combined ratio of 91.6% reflected solid
performance amidst elevated weather-related losses and inflationary
pressures.
Operating net investment income increased by 31%. This was driven
by the RSA acquisition and higher reinvestment yields, which we
captured through increased turnover of our investment portfolio.
With market yields remaining significantly higher than the book yield
of our portfolio, investment income will provide a meaningful earnings
tailwind for some time to come.
Distribution income grew by 21%, largely as a result of accretive
acquisitions and continued growth in our On Side home restoration
business. Over the last five years, annual growth has exceeded 10%
and we expect this momentum to continue into 2023.
Net Operating Income Per Share (NOIPS) of $11.88 reflected robust
underwriting performance and meaningful RSA accretion of 16%,
coupled with strong investment and distribution results.
Earnings Per Share of $13.46 increased by 9%, as solid operating
results were also bolstered by the gain on the sale of Codan Denmark.
This translated into an Operating Return on Equity (OROE) of 14.3%
and Return on Equity (ROE) of 16.5%.
While the absolute performance matters, the relative performance
compared to our competitors determines if we are winning. With an
ROE of 10.3 points above the industry, it is fair to say that we’re at a
healthy advantage. It’s this outperformance that drives our ability
to invest, grow, face disruption in distribution and demonstrate
tremendous resilience against adversity.
We are well positioned to absorb volatility
in the external environment and pursue future
growth opportunities.
Our sights are set firmly on 2023 and beyond. The business overall is
operating at a low 90s operating combined ratio. Top line momentum
is positive and our balance sheet remains strong. We are on track to
deliver on our financial objectives – to grow Net Operating Income
Per Share by 10% annually over time and to outperform the industry
ROE by at least 500 basis points each year.
1
This is Operating Direct Premium Written, which is a non-GAAP measure. See Section 36 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable
GAAP measures.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
How We See the World
A key ingredient of our success over the last decade and confidence in our future
performance comes from being focused on the deep trends shaping society. Having a
good understanding of how they impact our customers, employees and our communities
is fundamental to winning. And strategy is really about using our strengths and
competitive advantages to turn these trends into growth opportunities.
Right now, we see high inflation and low growth at the top of the
economic agenda. Inflation pressures and related uncertainty
around short-term and long-term interest rates are driving current
capital market volatility. While we see central banks acting with
resolve to bring inflation back to target, we believe inflation will
be stubborn. As a result, we intend to navigate the investment
environment conservatively while seizing opportunities to improve
income as they arise.
We are also seeing the effects of a strong labour market. While positive
for real wage growth, it is also adding to the inflationary environment.
With pressure on wages and supply chains, moving back to a 2%
target rate of inflation could prove challenging. Monetary policy and
related housing pressure coupled with capital market volatility will
mean little or negative growth this year.
The cost-of-living crisis being felt by so many is feeding into the speed
at which consumers’ expectations are changing. Customers want
simplicity, transparency and – with purchasing power declining –
they want value for money. Technology is also influencing customer
expectations. It is changing how we consume and share information
and influencing how we live.
We’ve responded with an increasing range of digital options while
continuing to focus on the importance of the human dimension. With
a wider range of brands and products, we can offer a spectrum of
services at different price points. We continue to look at additional
ways to provide availability and affordability, including new low-cost
options in the future.
Customers want simplicity, transparency
and – with purchasing power declining –
they want value for money.
We are seeing an explosion in the democratization of data. Over
the next three years we expect the data sets that exist globally to
increase by a factor of three. One-third of our competitive advantage
is based on how we use data. Our focus on AI and machine learning
over the last seven years has given us an edge. We need to build
on it. Our enhancements to Usage Based Insurance – including our
recently launched eco fuel component to help customers track their
greenhouse gas emissions – is a good example of that work.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
Much of the damage to our climate is irreversible and the positive
impacts of emissions reduction will be slow at first. That means
extreme weather is going to get worse over the next decade. Our
societal response must be to double down on adapting to this
changing environment and be better prepared for floods, wildfire
and extreme heat.
We’ve been on the front lines of climate change with our customers for
more than a decade – getting them back on track and helping them
adapt. We have a plan – to help people build resilient communities –
and win in the climate transition. I will talk about this in the last part of
the letter.
Cyber security is another by-product of data explosion. Cyber
presents a massive threat and a big business opportunity.
Ransomware attacks are up three-fold in the past two years and up
50% over the past year. In Canada alone, that represents $3 billion of
losses, net of the investments on cyber defence, for customers and
businesses. We are building defensive capabilities for Intact and our
customers – we see Cyber as an emerging and important underwriting
segment in our Global Specialty Lines operations.
While many of the trends we are planning for are more medium- to
long-term, climate change is the defining trend of the next century.
Weather patterns have changed dramatically in the past 30 years.
Natural disasters are now four times more costly, frequent and intense.
This is the case globally, but it’s even more true in Canada, where the
temperature is rising twice as fast as the global average.
There is an urgency to the transition to net zero. To meet the
commitments in the Paris Agreement, global emissions must be
reduced by 45% from our current trajectory. This target has to be
reached within eight years and emissions must continue to decline
rapidly after that. For context, at the height of the pandemic, global
emissions were only down by approximately 5%.
We’ve been on the front lines
of climate change with our
customers for more than a
decade – getting them back
on track and helping
them adapt.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
What Intact is Aiming to Achieve
and How We are Doing It
To build a sound strategy, you need to be clear about what you are trying to achieve.
Success for us starts with customers. We aim to have three out of four customers as
advocates – meaning they would feel comfortable recommending us to friends or family.
Many of our customer relationships are via brokers and so we also aspire to have
four out of five brokers value our specialized expertise.
Employee engagement is our second objective and a key factor
for success. People are at the heart of our organization. We want
employees to be representative of the communities we serve and to
be proud of what they do and who they work with.
With one in two customers willing to recommend us to friends
and family – and that number rising to 70% when customers have
a transaction with us – we are confident that we will achieve our
customer advocacy objective.
Our third objective is to ensure that we are one of the most respected
companies. We measure this in three ways – by showing leadership in
building resilient communities, by reducing our carbon emissions, and
by outperforming our competitors financially.
On digital engagement, we have hit a major milestone of two million
Client Centre accounts, up 14% from 2021. Over half of our customers
in Canada can now access insurance services online. And more than
half of online transactions are now completed via our apps.
To execute against these objectives, we have a bold strategic
roadmap. Below, I’ve outlined our progress this year and how we are
set up for success in 2023.
Expanding our leadership position
in Canada
Our strategy in Canada is clear. It starts with leading in customer
experience and ensuring that three out of four customers are digitally
engaged. Scale in distribution and further consolidation in the market
round out the game plan.
We are on track to achieve our targets in distribution. BrokerLink
further bolstered its footprint this year with 24 acquisitions
representing $374 million in Direct Premium Written (DPW). In 2022,
BrokerLink surpassed $3 billion in DPW, putting us on track to hit
our distribution goal of $5 billion DPW by 2025.
The RSA acquisition and integration has been a game changer for
our Canadian operations, leading to 20% market share in Canada
and adding 30% more volume to the business. Customer retention
has been in the range of 90%. We see further consolidation
opportunities over the next five to 10 years and our goal is to insure
one in three Canadians.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
In 2023, we will strive to deepen our relationships with customers
by doubling down on the customer experience both digitally and
in-person. We’ve set bold ambitions to outperform the industry
operating combined ratio by five points and to hit $20 billion in annual
premium by 2027.
Strengthening our leading position
in the U.K. and Ireland
We’ve laid out a game plan focused on building a strong, sustainable
and profitable business in the region. It begins with leading
in customer experience and digital engagement. Optimizing
underwriting and focusing the footprint for outperformance are
also key elements of the plan.
We are investing in technology platforms to drive a better digital
experience for customers and brokers as well as for the employees
who are serving them. And we have started to deploy IFC’s
competitive advantages – improving pricing and risk selection
with the help of our Data Lab.
We continue to evaluate our value propositions across our
personal lines portfolio in the U.K. in an effort to drive sustainable
outperformance. And we see big opportunities in mid-market
commercial lines where we have strength and scale.
We are aiming for a sustainable low 90s operating combined ratio
across the U.K. and Ireland by the end of 2024.
Building a Specialty Solutions leader
With the strength of the RSA network and access to 70% of the global
market, we have built a truly global specialty solutions platform. We
can now service customers around the globe, offering policies and
handling claims locally in more than 150 countries and territories.
Marine has been established as our first Global Franchise.
Our core platform is built on three pillars: talent and expertise, deep
distribution relationships and diverse product offerings. With a
sharper focus on execution, we are in a solid position to outperform.
In 2023, we will bring our global capabilities together in a cohesive
fashion across the platform. And we will continue to improve our risk
selection tools and strategies.
As referenced earlier, with deep trends in the explosion of data and
climate change, we are focused on cyber and renewable energy as two
emerging and important specialty underwriting segments.
With a solid growth plan in place, we have raised our ambitions to
reach $10 billion in annual premium by the end of the decade while
further deepening our outperformance in this sector to operate at a
sustainable sub-90s operating combined ratio.
Transforming our competitive
advantages
Our use of data and AI for pricing and risk selection, our deep claims
expertise and strong supply chain, and our strong capital and
investment management expertise set us apart from the competition.
With deep trends in the
explosion of data and
climate change, we are
focused on cyber and
renewable energy as
two emerging and
important specialty
underwriting segments.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
Data and AI
The Data Lab has grown to more than 500 data specialists. This team
is focused on improving risk selection and making our operations
as efficient as possible while creating outstanding interactions
with customers.
We have delivered nearly 300 AI models that have in aggregate yielded
almost $100 million of run-rate underwriting benefits.
Advanced machine learning techniques have helped us test more
than 100 new proprietary weather variables and deploy more than
10 specific spatial and geographic models – all created by our own
meteorologists. The Lab is also working with our social impact team to
better identify the most climate vulnerable communities in Canada.
We can now better predict losses and customer behaviour, and we will
be leveraging this expertise to a greater extent in our Commercial and
Specialty Lines operations over the next three years.
Claims and supply chain
We handled over one million claims globally in 2022 – paying out
$11 billion and getting our customers back on track.
We’ve continued to internalize our claims process over the last year,
driving synergies and better customer service.
We doubled down on the Intact Service Centre model in Canada
in 2022, opening 11 partner-operated locations. These new
centres exclusively service Intact customers with an enhanced
experience that is faster and more convenient while strengthening
controls on indemnity.
Our strong supply chain networks helped us better manage supply
chain dislocation and inflation and minimize disruption for our
customers during a very challenging period.
Our investment in On Side, our property restoration company,
continues to pay dividends. It’s been a game changer from a customer
experience perspective. We will aim to double the size of On Side over
the next few years. With extreme weather on the rise, demand will only
continue to increase.
Capital and investment management
Our capital and investment management scope has grown
significantly over the last 18 months. We added global expertise to our
internal investment management team – an already best-in-class and
award-winning team. Our diverse geography, strong balance sheet
and capital position underpin our ability to optimize asset allocation
decisions, capture opportunities and manage headwinds.
With the experts on our team in Canada and the U.K. leading the way,
we recently strengthened Intact’s balance sheet further by completing
a £6.5 billion U.K. pension buy-in agreement1 with Pension Insurance
Corporation (PIC). This transaction removes U.K. pension exposure
on our balance sheet by fully insuring U.K. defined benefit pension
liabilities with PIC. The transaction supports our ROE outperformance
objectives by improving capital efficiency and enhances our ability to
pursue future growth opportunities.
Investing in our people
Our people are at the heart of our ability to deliver on our purpose.
That is why one of our objectives is to ensure that our people are
engaged. It’s why investing in our people is an important aspect
of our strategic roadmap.
Being a best employer, a destination for top talent and experts, and
enabling our people to thrive are the key areas of focus.
Being a best employer means ensuring our employees are engaged
as measured through Kincentric Best Employer surveys. In Canada
we’ve achieved Best Employer status for the seventh consecutive year
and for the fourth consecutive year in the U.S. We also launched the
Kincentric survey in the U.K. and International region this year.
Our people are at the heart of our ability
to deliver on our purpose.
Being a best employer goes beyond survey results. It’s about
delivering on our Employee Promise to provide people with the
opportunity to shape the future, win as a team and grow with us.
We believe our team is stronger than it’s ever been. At the same
time, the world is changing. The demographic challenges of an aging
workforce are impacting an already tight labour market and the ability
to attract and retain talent. Continued outperformance means we
need to keep growing our skills and leadership capabilities, and be
proactive in identifying talent so that we can maintain our edge for
decades to come.
Finally, we know that thriving employees will enable sustained
outperformance and growth. That is why it’s important to invest not
only in our employees’ growth and development but also in the tools
that our people use to perform each day, as well as in their resilience
and wellness.
1
Our press releases dated February 27 and February 28, 2023, provide further details on this transaction and its partial financing through our Limited Recourse Capital Notes offering.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
Building Resilience and Transitioning
to a Low Carbon Economy
Society is at a pivotal time. There are increasing expectations for businesses to step up –
three out of four people want us to do more. Governments and businesses must work together
to address key societal challenges, seize momentum and capitalize on the big trends.
To me it starts with leadership. True leadership requires genuine
care for people and a desire to relentlessly challenge the status quo.
Leadership is about the cause. It’s about inspiring people to be better.
We’ve invested $25 million into 100 climate adaptation projects over
a 13-year period. This includes partnerships with several leading
organizations.
At Intact we’ve always believed that we could help society and win in
the marketplace at the same time. It speaks to why we exist. It goes
to the core of our role as risk managers – and the part insurance plays
in protecting society.
• A $10 million commitment over 10 years to the Intact Centre
on Climate Adaptation at the University of Waterloo – helping
homeowners, communities, governments and businesses reduce
the impacts of climate change and extreme weather risk.
As leaders in getting people back on track, we believe we are uniquely
positioned to help build resilient communities. At Intact we define
resilient communities as being climate proof and economically thriving.
• A new $8 million, five-year partnership with the Nature
Conservancy of Canada to help accelerate nature-based
solutions for climate resilience.
In that context, let’s tackle climate first. It is one of the biggest
challenges we collectively face over the next 50 to 100 years. As
mentioned earlier, we’ve been on the front lines of climate change with
our customers for over a decade. For us it’s about learning from our
experience and leading with our strengths.
With that in mind, we’ve established a shared mandate of helping
people adapt to climate change, encompassing our approach to
building resilient communities and our broader climate strategy.
Our thesis is that the most economically vulnerable communities
are also the most climate vulnerable. Our focus on climate
adaptation is guided by an ambition to make these communities
more climate resilient.
• A U.K.-based partnership with The Wildlife Trusts on natural
flood management techniques that will enhance biodiversity, test
sustainable urban drainage systems and help protect communities
downstream.
• A new partnership with Landscape Enterprise Networks in the
U.K. focusing on organizing the buying and selling of nature-based
solutions to improve water quality, sequester carbon, enhance
biodiversity and promote more resilient land management.
While helping communities adapt to climate change is where we
want to lead, seizing the opportunity to help and win in the climate
transition is an important part of our strategic roadmap.
13
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
Building on our leadership in climate adaptation, we launched a
comprehensive Climate Strategy earlier last year. It includes five big
intentions – commit, adapt, shape, enable, collaborate:
strengths in this area. We will aim to identify new partnerships to
help communities both navigate a challenging economy and access
opportunities for development and growth.
• We commit to achieving net zero emissions by 2050 and halving
emissions from our corporate operations by 2030.
• We will double down on our shared mandate on climate
adaptation – with a focus on investing in natural infrastructure
and scaling up restoration services to address the growing impact
of severe weather.
• We want to shape customer behaviour – leverage our platform to
help them adopt climate friendly behaviours in their own transition
to net zero.
• In our role as risk managers, we can do our part to enable the
transformation of industries that are key to the transition.
• Collaborate with governments and industry to accelerate
climate action.
We’ve had very positive interactions with governments on climate.
We’ve been active participants on the Sustainable Finance Action
Council and in the development of the National Adaptation
Strategy (NAS) in Canada. Through RSA we committed to Build
Back Better, a joint initiative between the U.K. insurance industry
and the government that promotes affordability and availability of
flood insurance.
Climate change isn’t the only challenge that communities face and
building resiliency also includes economic resilience.
Over the last few years, we have focused our efforts on economic
resilience by creating opportunity for families living in poverty. We
have existing partnerships with the United Way and Breakfast Club
of Canada. In 2023, we are taking a fresh look at how to best use our
I think there is room to work with government to better address
economic opportunity and a challenging labour market as we shift
to an increasingly automated and low carbon economy. We need to
better identify and seek out under-represented groups in the labour
force – including Indigenous Peoples, Black and Persons of Colour and
people living in poverty. Many of these individuals do not have access
to equitable skills training and other community support to help them
thrive. This requires both business and government investment.
One of our values is generosity, and I have been impressed by how
our people have stepped up. Last year, our employees donated more
than $3 million and volunteered more than 14,000 hours of their time
to over 400 organizations. It is important for us to support them in
helping their communities, so in 2022, Intact donated $12.5 million to
more than 2,000 organizations across all regions where we operate.
We want to make a difference and we hold ourselves accountable
to that. We’ve set an ambition to have three out of four stakeholders
see us as leaders in building resilient communities. And we’ve
developed a Resilience Barometer to measure our progress. In 2022,
we asked six stakeholder groups – customers, employees, brokers,
investors, governments, NGOs and industry associations – for
feedback on our performance.
Our inaugural results in Canada indicate we’re on the right track –
54% of stakeholders recognize us as leaders in building resilient
communities. And 90% of stakeholders believe Intact has a
responsibility to help communities become more resilient. We are
expanding the Barometer’s geographic reach in 2023 to include
U.S., U.K. and E.U. stakeholders.
We want to make
a difference and we hold
ourselves accountable
to that.
14
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
CEO’s Letter
Conclusion
While communities continue to face challenges around the world, I am optimistic that we
can make important progress with the right leadership and an all-of-society approach.
Our purpose grounds us – to help people, businesses and society
prosper in good times and be resilient in bad times. Our Values guide
every decision we make.
Intact’s track record demonstrates our ability to manage in difficult
times and our competitive advantage is stronger today than a decade
ago. This strength fuels our ability to take a help-and-win approach in
everything we do.
I want to thank our shareholders who have been backing our growth
over the past decade. Rest assured – we do not take your support
for granted.
Thank you also to our employees for their commitment to living our
values, delivering second-to-none service to our customers and
brokers, and demonstrating their generosity in the communities
where they live and work, day in and day out.
Charles Brindamour
Chief Executive Officer
15
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022
Table of contents
Chairman’s Letter
Chairman’s Letter
2022 was an important year marked
by adaptation and growth. Against
the backdrop of inflation, natural
catastrophes and volatile capital
markets, Intact made significant
progress toward fully integrating the
RSA business and continues to be in
a solid financial position. Intact has a
long history of adapting to grow the
business, even in challenging times, and
has demonstrated that ability yet again.
For the full year, premiums1 increased 23% to over $21 billion,
bolstered by the landmark RSA acquisition. Net operating
income per share remained solid at $11.88, reflecting robust
underwriting performance, meaningful accretion from RSA,
and strong investment and distribution results.
Intact’s strength can be attributed to its sound strategy
that guides the business. Success begins with customers. If
shareholders want to win, customers must win first, which is
why Intact aims to exceed expectations and have customers
be our advocates. This year we made meaningful progress
on that front, particularly through digital engagement and
AI. Thanks to continued investment in technology, Intact has
expanded its digital footprint. In Canada, one out of every two
customers are digitally engaged , and we’re making significant
strides towards reaching our goal of having three out of four
customers being digitally engaged.
Success also stems from having an engaged team, and Intact
continues to focus on attracting, retaining and developing
high-performing employees, who represent the communities
we serve. Six out of thirteen board members are women, and
we will continue to strive for gender parity. Having diverse
perspectives at the table is key to a strong board and building
an engaged team in the business, and this will strengthen our
competitive position in the market.
The Board is proud to recognize that Intact was once again
named a Best Employer in Canada, the United States and
North America. The U.K. participated in our Engagement
Survey for the first time in 2022 – an important step in helping
us determine how best to keep employees engaged across all
our markets.
William Young
Chairman of the Board
1
This is Operating Direct Premium Written, which is a non-GAAP measure. See Section 36 – Non-GAAP and other financial measures of the MD&A for the definition and reconciliation to the most comparable
GAAP measures.
16
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Strength in the market also comes from being a recognized leader
and a force for good in our industry. The Board is pleased Intact has
been recognized again as one of Canada’s most respected companies
in The Globe & Mail’s 2022 Board Games rankings. This reflects the
company’s strong governance, purpose, and Values.
2022 was another year where deep-rooted challenges impacted
people, communities and the economy. Intact’s purpose is to help
people, businesses, and society prosper in good times and be resilient
in bad times, making Social Impact and ESG fundamental parts of
Intact’s business. This year, Intact released its global climate strategy,
a significant step for our business that strengthens our ongoing
commitment to climate action. We invite you to read more about how
Intact manages climate change and works to build a resilient society in
our Social Impact & ESG Report.
As the Board looks to the future, overseeing the implementation of
our strategy will be a priority, and we will also focus on the succession
of senior management team members. Happily, the bench at Intact
is deep, with seven successors available to step into each of the top
250 positions. Communication between shareholders, the Board
and Management is another priority. This year I participated in
stakeholder engagement and met with shareholders who represented
approximately 34% of our investor base. Intact also held its first in-
person investor day since 2019, where we shared with investors our
strategy and ambitions for the markets in which we operate.
I want to take a moment to thank the members of the Board for their
unwavering dedication and expertise this year, which guided us
through challenges and ever-changing economic and socio-political
circumstances, helping us reach the strong position we’re in today.
I’m pleased to welcome our newest Board Member, Michael Katchen,
who was appointed in July. As Co-founder and CEO of Wealthsimple,
Table of contents
Chairman’s Letter
Michael is a leader in technological innovation, and I know the Board
will benefit immensely from his expertise. 2022 marked my first year
as Chair of the Board of Directors, and over the past year, it’s been an
absolute privilege to lead this highly committed team.
I also want to thank Charles Brindamour and his Executive Team, who
have done an extraordinary job of growing Intact into the leading
company that it is today. Charles’s track record of consistently
outperforming in the industry and providing value for shareholders
was recognized publicly this year when he was named Canada’s
outstanding CEO of the year by Caldwell and Bennett Jones. The
award is a tremendous honour but comes as no surprise to those of us
who have worked closely with him. Charles and his Executive Team’s
resolute leadership in the face of challenges gives me immeasurable
confidence that Intact will continue to outperform while serving the
interests of all stakeholders.
In conclusion, as your new Chairman, I’d like to thank employees,
customers, brokers and shareholders for your continued loyalty and
support. Intact’s ability to adapt and its commitment to excellence was
illustrated again in 2022, and I am confident the company will continue
to thrive in the years ahead.
Sincerely,
William L. Young
Chairman of the Board
Strength in the market
also comes from being a
recognized leader and a force
for good in our industry.
17
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022
Table of contents
Our Board
Our Board
William L. Young
Chair of the Board of Intact Financial Corporation
and Chair of the Board of SNC-Lavalin Group Inc.
Charles Brindamour
Chief Executive Officer,
Intact Financial Corporation
Emmanuel Clarke
Corporate Director
Audit Committee + Risk Management Committee
Michael Katchen
Chief Executive Officer and Co-Founder,
Wealthsimple
Human Resources and Compensation Committee
Jane E. Kinney
Corporate Director
Audit Committee + Governance and
Sustainability Committee
Sylvie Paquette
Corporate Director
Human Resources and Compensation Committee +
Risk Management Committee
Indira V. Samarasekera
Corporate Director and
Senior Advisor, Bennett Jones, LLP
Governance and Sustainability Committee +
Human Resources and Compensation Committee
Carolyn A. Wilkins
Corporate Director and Senior Research Scholar at
the Griswold Center for Economic Policy Studies,
Princeton University
Audit Committee + Risk Management Committee
Janet De Silva
President and CEO
of Toronto Region Board of Trade
Audit Committee + Risk Management Committee
Stephani Kingsmill
Corporate Director
Governance and Sustainability Committee +
Human Resources and Compensation Committee
Robert G. Leary
Corporate Director
Human Resources and Compensation Committee +
Risk Management Committee
Stuart J. Russell
Professor of Electrical Engineering and Computer
Sciences at University of California at Berkeley
Human Resources and Compensation Committee +
Risk Management Committee
Frederick Singer
Corporate Director
Audit Committee + Governance and
Sustainability Committee
Complete biographies of the members of the Board of Directors available at www.intactfc.com.
18
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Our Leadership
Charles Brindamour
Chief Executive Officer,
Intact Financial Corporation
Patrick Barbeau
Executive Vice President &
Chief Operating Officer
Frédéric Cotnoir
Executive Vice President &
Chief Legal Officer & Secretary
Anne Fortin
Executive Vice President,
Direct Distribution & Chief Marketing &
Communications Officer
Darren Godfrey
Executive Vice President,
Global Specialty Lines
T. Michael Miller
Chief Executive Officer,
Global Specialty Lines
Werner Muehlemann
Executive Vice President & Managing Director,
Intact Investment Management Inc.
Table of contents
Our Leadership
Ken Anderson
Executive Vice President, CFO, RSA UK&I
Sonya Côté
Senior Vice President &
Group Chief Internal Auditor
Debbie Coull-Cicchini
Executive Vice President, Intact Insurance
(excluding Québec)
Louis Gagnon
Chief Executive Officer, Canada
Louis Marcotte
Executive Vice President &
Chief Financial Officer
Benoit Morissette
Executive Vice President,
Chief Risk & Actuarial Officer
Ken Norgrove
Chief Executive Officer, UK&I
Carla Smith
Executive Vice President & Chief Human Resources,
Strategy & Climate Officer
Complete biographies of our executives
available at www.intactfc.com.
As at December 31, 2022
19
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 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 124;
Financial Statements – pages 1 to 90.
20
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Intact Financial Corporation
Management’s Discussion and Analysis
For the year ended December 31, 2022
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
OVERVIEW ................................................................................................................................................................................................................. 4
PERFORMANCE ........................................................................................................................................................................................................ 7
ENVIRONMENT & OUTLOOK .................................................................................................................................................................................. 37
STRATEGY ............................................................................................................................................................................................................... 45
FINANCIAL CONDITION .......................................................................................................................................................................................... 54
RISK MANAGEMENT ............................................................................................................................................................................................... 74
ADDITIONAL INFORMATION .................................................................................................................................................................................. 99
INTACT FINANCIAL CORPORATION 1
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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, 2022. 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, 2022, compared to the corresponding periods in 2021. It should
be read in conjunction with our Consolidated financial statements for our fiscal year ended December 31, 2022. This MD&A is dated
February 7, 2023.
“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 and Social impact report,
may be found online on SEDAR at www.sedar.com.
• Abbreviations and definitions of selected key terms used in this MD&A are defined in Section 40 – Glossary and definitions.
• Other insurance-related terms are defined in Section 40 – 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 Generally Accepted Accounting Principles financial measures (“reported measures”), as well as Non-GAAP financial measures
and Non-GAAP ratios (each as defined in National Instrument 52-112 “Non-GAAP and Other Financial Measures Disclosure”) to assess our
performance. Non-GAAP financial measures and Non-GAAP ratios (which are calculated using Non-GAAP financial 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, operating net investment 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 analyses
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 36 – 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, 2022
(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, 2022, 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”), the sale of
the Company’s 50% stake in RSA Middle East B.S.C. (c) to the National Life & General Insurance Company (NLGIC) (the “Sale of
RSA Middle East”), the realization of the expected strategic, financial and other benefits of the Sale of RSA Middle East, 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, economic and political environments and industry
conditions. 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, credit, market,
liquidity, operational, strategic and legal risks and the risks discussed in Section 33.6- Top and emerging risks that may affect
future results and Section 33.7- Other risk factors that may affect future results of this MD&A for the year ended December
31, 2022, including a major earthquake, climate change, catastrophe, increased competition and disruption, turbulence in financial
markets, reserving inadequacy, underwriting inadequacy, reinsurance, governmental and/or regulatory intervention, failure of an
acquisition, cyber security failure, failure of a major technology initiative, inability to contain fraud and/or abuse, customer satisfaction,
social unrest, third party reliance, employee defined benefit pension plan, the ability to retain and to attract talent, business
interruption to our operations, credit downgrade, limit on dividend and capital distribution.
All of the forward-looking statements included in this MD&A and the quarterly earnings press release dated February 7, 2023 are
qualified by these cautionary statements and those made in the section entitled Risk management (Sections 30-34) of this MD&A
for the year ended December 31, 2022 and the Company’s Annual Information Form for the year ended December 31, 2022. 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.
INTACT FINANCIAL CORPORATION 3
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
OVERVIEW
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.
Integrity | Respect | Customer Driven | Excellence | Generosity
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 28,500 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 $21 billion of
total annual operating DPW.
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, as well as specialty insurance through our managing general agencies. 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 and Europe, we provide
personal, commercial and/or specialty insurance solutions through the RSA brands.
2022 Operating DPW1
by business segment and line of business
Total PL
Total CL
PA
26%
2%
-
PP
17%
6%
-
Reg. CL
15%
8%
-
SL
9%
6%
11%
Total
67%
22%
11%
Canada
UK&I
US
PA: Personal auto; PP: Personal property
Reg. CL: Commercial lines excluding specialty lines: SL: Specialty lines
1 See Section 36 – Non-GAAP and other financial measures for more details.
2022 Operating DPW1
by distribution channel
Brokers and MGAs
Direct to consumers
22%
$21.1B
78%
4 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 2 - Segments and lines of business
We report our financial results under the three business segments and the lines of business set out below. The composition of our
segments is aligned with our internal financial reporting based on management structure and geography. Underwriting results exclude
those of exited lines, which are reported in Income (loss) from exited lines (see Section 15.2 – Income (loss) from exited lines for
details).
Canada (CAN)
Segment
Underwriting and distribution
activities in Canada.
Three lines of business:
Personal auto
Personal property
Commercial lines
SEGMENTS
UK and International
(UK&I) Segment
Underwriting activities in the
UK, Ireland and Europe.
Two lines of business:
Personal lines
Commercial lines
US
Segment
Underwriting and
distribution activities in
the US.
One line of business:
Commercial lines
Corporate and Other
(Corporate)
Activities managed centrally, including
investment activities, financing activities
as well as corporate centres of expertise
outside the business segments, such as:
group legal, finance, investor relations,
corporate development, strategy and
other head office responsibilities.
LINES OF BUSINESS
Personal auto – CANADA
We provide 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 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. We also provide travel insurance.
Commercial lines (including specialty lines) – CANADA
We provide a broad range of coverages tailored to the needs of a diversified group of 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 coverage. 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 and Ireland.
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, 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, builder’s risk, 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 and entertainment) or product niche (such as surety, excess property,
multi-national programs, management liability and cyber). We continue to capitalize on the opportunities to expand and bring our
capabilities to new markets across the globe.
INTACT FINANCIAL CORPORATION 5
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 continue to strengthen and leverage, are described below.
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.
• We have leading direct channel brands in Canada, UK, and Ireland for customers who prefer the
convenience of a simplified and digital-first experience.
• Our growing portfolio of owned distribution assets of brokers and MGAs supports our growth
strategies across personal, commercial, and specialty lines.
Leading
digital
engagement
• 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
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
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 commitment to Diversity, Equity, and Inclusion enriches our working environment and strengthens
innovation and creativity.
• Our underwriting business is well diversified across geographies with presence in Canada, US, UK,
and EU, and lines of business in personal, commercial, and specialty insurance.
• Our investment portfolio, and our growing streams of distribution income from our vertically integrated
supply chain and distribution channels, provide earnings diversification and reduce volatility.
• With over 500 data scientists, actuaries, data engineers, and data specialists, our AI and machine
learning expertise combined with our data advantage results in deeply sophisticated and widely-
deployed algorithms that price for risk more accurately than the market.
• With nearly 300 AI models deployed in operation, we are able to attract and retain customers in a way
that optimizes for growth and outperformance.
•
The majority of our claims are handled in-house with the support of our preferred network of suppliers.
• Our in-house claims experts and fully integrated claims handling processes allow us to take control
of the claims journey in a way that is optimized for customer experience, operational efficiency, and
indemnity control.
• We have invested directly in our auto and property supply chain to strengthen our network, which
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 our strategy.
•
• We are a proven industry consolidator with 18 successful P&C 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, US, UK and EU.
• 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.
6 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
PERFORMANCE
Section 4 - Consolidated performance
4.1 Consolidated highlights
Q4-2022 Highlights
• Operating DPW1 growth accelerated to 3% in the quarter, 5% excluding strategic exits, on favourable market conditions
• Operating combined ratio1 was a solid 91.5% in Q4-2022 and 91.6% for the full year, despite elevated catastrophe losses and
inflation
• NOIPS1 of $3.34 in Q4-2022 and $11.88 for the full year reflected higher investment and distribution income, which partially offset
lower underwriting margins
• EPS decreased to $2.26 in Q4-2022 but was up 9% for the full year on higher operating income and investment gains
• OROE of 14.3% and ROE of 16.5%, reflected strong operating performance in a challenging environment
• Balance sheet remained strong with a total capital margin of $2.4 billion and BVPS of $80.33 despite capital markets volatility
• Quarterly dividend increased by 10% to $1.10 per common share
Table 1 - Consolidated performance1
Section Q4-2022 Q4-2021
Change
2022
2021 Change
Operating DPW1 (growth in constant currency)
Direct premium written (growth in constant currency)
Operating NEP1
Net earned premiums
Operating income
4.2
Underwriting income1
Operating net investment income1
Distribution income1
Total finance costs1
Other operating income (expense)1
Pre-tax operating income (PTOI)1
NOI attributable to common shareholders1,2
Non-operating results
Net income
Claims ratio1
Expense ratio1
Operating combined ratio1
4.2
13
14
4.2
5.1
4.2
Per share measures, basic and diluted (in dollars)
NOIPS1 4.2
4.2
EPS
28.6
BVPS
Return on equity for the last 12 months
OROE1
AROE1
ROE1
4.2
4.2
4.2
5,125
5,528
5,004
5,054
427
279
93
(55)
(27)
717
585
(236)
419
60.7%
30.8%
91.5%
3.34
2.26
80.33
14.3%
19.5%
16.5%
5,017
5,318
4,931
5,003
600
220
77
(43)
4
858
666
17
701
56.2%
31.6%
87.8%
3.78
3.85
82.34
3%
5%
1%
1%
21,053
22,655
19,384
19,792
17,283
17,994
16,043
16,238
23%
28%
21%
22%
(9)%
31%
21%
nm
nm
-%
1,626
927
437
(189)
(134)
1,787
706
362
(162)
(25)
2,667
2,668
2,086
311
2,420
60.3%
31.3%
91.6%
2,017
(70)
2,088
55.9%
32.9%
88.8%
3%
nm
16%
4.4 pts
(1.6) pts
2.8 pts
11.88
13.46
12.41
12.40
(4)%
9%
(29)%
27%
21%
nm
nm
(16)%
(12)%
nm
(40)%
4.5 pts
(0.8) pts
3.7 pts
(12)%
(41)%
(2)%
17.8%
21.0%
17.0%
(3.5) pts
(1.5) pts
(0.5) pts
Total capital margin
Adjusted debt-to-total capital ratio1
1 See Section 36 – Non-GAAP and other financial measures for more details.
² Net of preferred share dividends and net income attributable to non-controlling interests. See Table 43 for more details.
(512)
(1.8) pts
2,891
23.0%
2,379
21.2%
28.2
28.2
INTACT FINANCIAL CORPORATION 7
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
4.2 Consolidated performance
Table 2 – Consolidated underwriting performance
Section
Q4-2022
Q4-2021
Change
2022
2021
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
3,417
1,144
564
n/a
5,125
88.7%
104.0%
85.1%
n/a
91.5%
3,283
1,274
460
n/a
5,017
84.4%
93.0%
92.5%
n/a
87.8%
4%
(4)%
13%
nm
3%
4.3 pts
11.0 pts
(7.4) pts
nm
3.7 pts
14,037
4,671
2,345
n/a
21,053
90.5%
97.0%
88.2%
n/a
91.6%
12,023
2,538
1,988
734
17,283
86.7%
93.4%
92.9%
90.7%
88.8%
17%
nm
14%
nm
23%
3.8 pts
nm
(4.7) pts
nm
2.8 pts
Operating DPW
growth (in constant
currency)
(Sections 6-8)
Underwriting
performance
(Sections 6-8)
Operating net
investment income
(Section 13)
Distribution
income
(Section 14)
Q4-2022 vs Q4-2021
▪
• On a constant currency basis, overall
premium growth of 3%. Excluding strategic
exits, growth was 5%, a point higher than in the
preceding quarter, reflecting favourable market
conditions, including rate increases.
2022 vs 2021
• On a constant currency basis, overall premium
growth of 23%, bolstered by the RSA Acquisition.
Excluding this and the impact of exited lines,
premium growth was 5%, led mainly by continued
rate momentum.
• Overall operating combined ratio was solid
at 91.5%, reflecting strong performances in the
US and Canada, despite inflation pressures in
personal auto. UK&I results were impacted by
unusually severe winter conditions
the
quarter.
in
• Operating net investment income increased
by 27% to $279 million, driven by higher
reinvestment yields, captured through maturity
and trading.
• Distribution income grew by 21%, bolstered
by accretive acquisitions (including Highland),
a solid contribution from On Side, and organic
growth driven by rate increases.
• Operating combined ratio of 91.6% reflected a
solid performance for the year amidst elevated
weather-related losses and inflationary pressures.
• Operating net investment income increased
by 31% to $927 million, driven by the RSA
Acquisition and higher reinvestment yields.
by
• Distribution income grew by 21% for 2022,
driven
variable
acquisitions,
commission revenues and a solid contribution
from On Side. Over the last 5 years, annual
growth has exceeded 10% and we expect this
momentum to continue into 2023.
higher
Total finance costs
•
(Section 9)
Total finance costs of $55 million increased
compared to last year, driven by the financing
for the Highland acquisition and rate increases
on our short-term debt.
• Total finance costs of $189 million were higher
than last year, mainly due to the impact of the RSA
Acquisition.
Other operating
income (expense)
(Section 9)
• Other operating expenses of $27 million
reflected the central corporate costs and were
in line with our expected run-rate for the quarter.
• Other operating expenses of $134 million
included general corporate expenses, now held
centrally following the RSA Acquisition.
8 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
NOIPS
Non-operating
results
(Section 15)
Effective income
tax rates1
(Section 16.2)
EPS
Return on equity
for the last 12
months
BVPS
(Section 28.6)
Adjusted debt-to-
total capital ratio
(Section 28.2)
Financial
condition
(Section 28.2)
▪
Q4-2022 vs Q4-2021
• NOIPS of $3.34 was lower than last year, as
higher investment and distribution income only
partially offset the impact of lower underwriting
margins.
2022 vs 2021
• NOIPS remained solid at $11.88, reflecting a
robust underwriting performance and meaningful
RSA accretion, coupled with strong investment
and distribution results.
• Non-operating losses of $236 million compared
to a non-operating gain of $17 million last year,
largely due to the recent volatility in capital
markets. This also reflected an increase in
underwriting losses from our exited lines, as we
continue to focus on portfolio quality.
• Operating effective income tax rate of 15.2%
and total effective income tax rate of 12.9% in
the quarter were lower than expected and
included a 9-point benefit due to our ability to
recognize more tax recoveries, thanks to our
improved outlook on future profitability in the UK.
• EPS decreased by 41% to $2.26, driven by net
investment losses caused by recent volatility in
capital markets, compared to significant gains in
the prior year. EPS was significantly lower than
NOIPS this quarter due to the non-operating
losses described above.
• Non-operating gains of $311 million compared
to a non-operating loss of $70 million last year,
due to a $421 million gain from the sale of Codan
Forsikring A/S
(“Codan DK”), as well as
favourable MYE.
• Operating effective income tax rate of 18.8%
was lower than 2021, mainly due to the benefit of
the tax recoveries in the UK.
• Total effective income tax rate of 18.7% for
2022 was lower than expected, due to non-taxable
gains in Q2-2022 and the previously mentioned
UK tax benefits.
• EPS of $13.46 increased by 9%, as solid
operating results were bolstered by the gain on the
sale of Codan DK.
• Operating ROE of 14.3% reflected a strong operating performance across the business, even with
elevated CAT losses.
• Adjusted ROE of 19.5% and ROE of 16.5%, reflected strong results in a challenging environment,
bolstered by the gain from the sale of Codan DK and realized gains on our equity portfolio.
• BVPS of $80.33 increased from Q3-2022, driven
by solid earnings and mark-to-market gains on
our available-for-sale securities portfolio, partially
offset by market-related losses in our UK pension
plans.
• BVPS decreased by 2% year-over-year, as
strong earnings were offset by mark-to-market
losses on our investments earlier in the year,
caused by the increase in interest rates and the
recent volatility in capital markets.
• Our adjusted debt-to-total capital ratio decreased to 21.2% as at December 31, 2022, mainly due to
the repayment of the US senior notes of US$275 million.
• We ended the year in a strong financial position, with $2.4 billion of total capital margin and solid
regulated capital ratios in all jurisdictions.
¹ See Note 27.2 – Effective income tax rate to the Consolidated financial statements and Section 36 – Non-GAAP and other financial
measures for more details.
IFRS 17 / 9
Effective Q1-2023
•
Q4-2022 is the last quarter that will be reported under IFRS 4 and IAS 39. Starting in Q1-2023,
results will be reported under IFRS 17 and IFRS 9. See Section 17 – IFRS 17 & 9 key impacts for
more details.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 5 - Segment performance
5.1 Operating performance by segment
Table 3 – Operating performance by segment1,2
For the quarters ended December 31,
CAN
UK&I
US CORP
2022
Total
CAN
UK&I
US
Corporate
RSA
Other
2021
Total
Operating DPW
3,417
1,144
564
-
5,125
3,283
1,274
460
3,403
(2,006)
1,048
(753)
551
(274)
2
-
5,004
(3,033)
3,296
(1,774)
1,145
(682)
485
(285)
(1,012)
(337)
(194)
(1)
(1,544)
(1,009)
(383)
(164)
Operating income
Operating NEP
Operating net claims
Operating net UW
expenses
Underwriting income
Operating net
investment income
Distribution income
Total finance costs
Other operating
income (expense)
385
(42)
83
1
-
91
(5)
-
-
-
-
-
-
2
-
-
279
-
(50)
(27)
PTOI
471
(42)
85
203
For the years ended December 31,
CAN
UK&I
US CORP
-
-
-
-
-
-
-
-
-
-
-
5,017
5
(32)
4,931
(2,773)
(2)
(1,558)
(29)
220
-
(42)
4
153
600
220
77
(43)
4
858
2021
Total
513
80
36
-
77
(1)
-
-
-
-
-
-
-
-
-
589
80
36
427
279
93
(55)
(27)
717
2022
Total
CAN
UK&I
US
Corporate
RSA Other
Operating DPW
14,037
4,671
2,345
-
21,053
12,023
2,538
1,988
734
-
17,283
Operating income
Operating NEP
Operating net claims
Operating net UW
expenses
Underwriting income
Operating net
investment income
Distribution income
Total finance costs
Other operating
income (expense)
13,369
(8,109)
4,127
(2,658)
1,871
(932)
17
1
19,384
(11,698)
11,450
(6,259)
2,319
(1,381)
1,652
(910)
608
(351)
14
(72)
16,043
(8,973)
(3,993)
(1,346)
(718)
(3)
(6,060)
(3,666)
(786)
(625)
(200)
(6)
(5,283)
1,267
123
221
15
1,626
1,525
152
117
57
(64)
1,787
-
430
(12)
-
-
-
-
-
-
7
-
-
927
927
-
(177)
437
(189)
(134)
(134)
-
362
(9)
-
-
-
-
-
-
-
-
-
-
-
-
-
706
706
-
(153)
362
(162)
(25)
(25)
PTOI
1,685
123
228
631
2,667
1,878
152
117
57
464
2,668
1 The totals of the segment measures reconcile to Table 1 – Consolidated performance.
2 See Section 36 – Non-GAAP and other financial measures for more details.
10 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 6 - Canada segment
Canada segment
UNDERWRITING ACTIVITIES IN CANADA (see Section 6.1 – P&C Canada)
• We have more than $14 billion in annual operating DPW. We had an approximate market share of 20% in 2021¹.
• We underwrite automobile, home and business insurance contracts to individuals and businesses in Canada (including
specialty lines).
• We offer our products through multiple distribution channels including brokers, direct to consumer and our managing
general agent (MGA) platform.
•
Intact Insurance and RSA branded products are sold through a wide network of brokers, including our wholly-owned
subsidiary BrokerLink.
• Belairdirect is our direct-to-consumer brand.
•
Intact Public Entities is the MGA platform for distributing public entity insurance products in Canada. Coast Underwriters
is our MGA specialized in Marine Insurance.
• We also provide affinity insurance solutions through the Johnson Affinity Groups as well as exclusive and tailored offerings
through Intact Prestige.
•
In our strategic roadmap, we laid out our growth and profitability ambitions for Canada: to grow our DPW to $20 billion
by 2027, with 5 points of operating combined ratio outperformance.
¹ 2022 market share update will be available in the Q1-2023 MD&A.
2022 Operating DPW 1
by line of business
2022 Operating DPW 1
by region
PA
PP
CL
Ontario Québec
Alberta Other
2022 Operating DPW 1
by distribution channel
Brokers and MGAs
Direct to consumers
39%
26%
35%
40%
31%
80%
14%
15%
20%
¹ See Section 36 – Non-GAAP and other financial measures for more details.
INTACT FINANCIAL CORPORATION 11
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
6.1 P&C Canada
Table 4 – Underwriting results for P&C Canada1
Operating DPW
Operating NEP
Underwriting income
Underwriting ratios
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Commissions
General expenses
Premium taxes
Expense ratio
Operating combined ratio
Personal auto
Personal property
Commercial lines
Q4-2022 Q4-2021 Change
3,417
3,403
385
60.9%
2.6%
(4.5)%
59.0%
14.3%
11.6%
3.8%
3,283
3,296
4%
3%
513
(25)%
54.6%
3.2%
(4.0)%
53.8%
16.6%
10.1%
3.9%
6.3 pts
(0.6) pts
(0.5) pts
5.2 pts
(2.3) pts
1.5 pts
(0.1) pts
29.7%
30.6%
(0.9) pts
88.7%
95.8%
76.9%
89.0%
84.4%
4.3 pts
87.5%
79.5%
84.3%
8.3 pts
(2.6) pts
4.7 pts
2022
14,037
13,369
1,267
60.8%
4.2%
(4.3)%
60.7%
15.6%
10.4%
3.8%
29.8%
90.5%
92.9%
90.1%
87.9%
2021²
Change
12,023
11,450
1,525
55.8%
3.3%
(4.4)%
54.7%
18.2%
10.0%
3.8%
17%
17%
(17)%
5.0 pts
0.9 pts
0.1 pts
6.0 pts
(2.6) pts
0.4 pts
- pts
32.0%
(2.2) pts
86.7%
86.9%
83.8%
88.6%
3.8 pts
6.0 pts
6.3 pts
(0.7) pts
6.2
6.3
6.4
1 See Section 36 – Non-GAAP and other financial measures and Section 15.2 – Income (loss) from exited lines for more details.
2 Comparatives in the table above (2021) exclude the June 2021 underwriting results of RSA Canada. For more details, refer to Table 3 – Operating
performance by segment
Q4-2022 vs Q4-2021
• Premium growth was 4%, reflecting continued
rate momentum across all lines of business
tempered by muted unit growth.
2022 vs 2021
• Premium growth of 17% was bolstered by the RSA Acquisition.
Excluding this impact, growth was 4% driven by rates across all
lines of business.
• Expense ratio decreased to 29.7%, as variable
commissions returned closer to historical levels.
General expenses were
impacted by higher
variable compensation as well as technology and
marketing investments.
• Operating combined ratio was strong at 88.7%,
in personal
to a strong performance
thanks
property and commercial lines. Personal auto
delivered a mid-90s combined ratio, reflecting
inflation pressures coupled with higher weather-
related frequency.
• Expense ratio decreased to 29.8%, driven by lower variable
commissions across all lines of business compared to last year’s
elevated level. General expense ratio of 10.4% was comparable to
last year, despite the impact of the RSA Acquisition on business
mix (more direct business which typically has a higher general
expense ratio but lower commissions). We continue to deliver
earned synergies, which will support our underwriting margins.
• Overall operating combined ratio was strong at 90.5%,
reflecting a robust performance in commercial lines tempered by
higher weather-related claims and inflation pressures in personal
lines.
12 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
6.2 Personal auto
Table 5 – Underwriting results for Personal auto1
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
Q4-2022 Q4-2021
Change
1,255
1,083
1,387
58
78.9%
0.3%
(7.2)%
72.0%
23.8%
1,234
1,109
1,390
174
66.5%
0.4%
(3.9)%
63.0%
24.5%
2%
(2)%
-%
(67)%
12.4 pts
(0.1) pts
(3.3) pts
9.0 pts
(0.7) pts
Operating combined ratio
95.8%
87.5%
8.3 pts
1 See Section 36 – Non-GAAP and other financial measures for more details.
2022
5,514
5,035
5,502
389
73.3%
0.6%
(5.1)%
68.8%
24.1%
92.9%
2021
Change
4,843
4,694
4,825
632
64.4%
0.5%
(3.9)%
61.0%
25.9%
14%
7%
14%
(38)%
8.9 pts
0.1 pts
(1.2) pts
7.8 pts
(1.8) pts
86.9%
6.0 pts
Q4-2022 vs Q4-2021
• Premium growth of 2%, up 3 points from the preceding quarter,
was driven by rate increases and a firming market. Rates
progressed from mid-single-digits in Q3 to high single-digits in Q4.
2022 vs 2021
• Premium growth of 14% was bolstered by the RSA
Acquisition. Excluding this impact, operating DPW
was essentially flat as progressive rate increases
throughout the year were offset by unit pressures.
• Underlying current year loss ratio increased by 12.4 points to
78.9%, driven by inflationary pressures on short-tail coverages, as
well as higher claims frequency from increased driving activity and
challenging weather. We continue to tackle inflation pressures
through our ongoing rate and underwriting actions.
• Underlying current year loss ratio increased by
8.9 points to 73.3%, reflecting increased driving
activity across the country and claims inflation, offset
in part by the benefit of our profitability actions,
including rate increases.
• CAT loss ratio of 0.3% in the quarter and 0.6% for 2022 was in line with expectations.
•
Favourable PYD of 7.2% in the quarter and 5.1% in 2022 continued to be strong, reflecting our prudent reserving practices.
• Expense ratio of 23.8% in the quarter and 24.1% for 2022, lower than last year, largely due to lower variable commissions
partly offset by higher general expenses (see Section 6.1 – P&C Canada).
• Operating combined ratio of 95.8% was 8.3 points higher than
last year, mainly due to inflation pressures and higher frequency.
• We expect our earned rate momentum, coupled with
decelerating inflation, to position us to deliver a seasonally
adjusted sub-95 combined ratio in the next 12 months.
• Operating combined ratio was in line with
expectations for the full year at 92.9%, given
increased driving activity and higher claims severity
driven by inflationary pressures, which we tackled
with early mitigating actions.
Operating DPW
4
1
5
,
5
3
4
8
,
4
2
2
3
,
4
4
3
2
,
1
5
5
2
,
1
4
8
9
Q4
Full year
Underlying current year loss ratio
2021
2022
2020
%
9
.
8
7
%
8
.
8
5
%
5
.
6
6
Q4
%
3
.
3
7
%
0
.
1
6
%
4
.
4
6
Full year
Operating combined ratio
%
8
.
5
9
%
6
.
2
8
%
5
.
7
8
Q4
%
9
.
2
9
%
6
.
6
8
%
9
.
6
8
Full year
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
6.3 Personal property
Table 6 – Underwriting results for Personal property1
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
Q4-2022 Q4-2021
Change
874
697
872
201
45.2%
1.8%
(1.8)%
45.2%
31.7%
831
702
838
171
41.3%
6.8%
(1.0)%
47.1%
32.4%
5%
(1)%
4%
18%
3.9 pts
(5.0) pts
(0.8) pts
(1.9) pts
(0.7) pts
Operating combined ratio
76.9%
79.5%
(2.6) pts
1 See Section 36 – Non-GAAP and other financial measures for more details.
2022
3,632
2,981
3,428
339
50.6%
10.0%
(2.1)%
58.5%
31.6%
90.1%
2021
Change
3,104
2,770
2,924
472
45.7%
7.1%
(3.4)%
49.4%
34.4%
83.8%
17%
8%
17%
(28)%
4.9 pts
2.9 pts
1.3 pts
9.1 pts
(2.8) pts
6.3 pts
Q4-2022 vs Q4-2021
2022 vs 2021
• Premium growth of 5% was driven by rate increases
in firm market conditions.
• Premium growth of 17% was bolstered by
the RSA
Acquisition. Excluding this impact, operating DPW growth was
5%, driven by continued rate increases.
• Underlying current year
loss ratio of 45.2%
remained solid, though 3.9 points higher than last year
mainly from large fire losses during the quarter.
• Underlying current year loss ratio of 50.6% remained solid,
reflecting the benefit of higher earned rates, offset in part by
higher weather-related claims and large fire losses for the year.
• CAT loss ratio of 1.8% was lower than expectations
due to favourable development on CAT losses from
prior quarters (2 points), which partly offset the impact
of the December windstorm and hail event.
• CAT loss ratio of 10.0% was elevated mainly due to the May
windstorms in Quebec and Ontario, as well as Hurricane Fiona.
•
Favourable PYD ratio was healthy at 1.8% in the quarter and 2.1% for 2022.
• Expense ratio of 31.7% in the quarter and 31.6% for 2022, lower than last year, largely due to lower variable commissions.
(see Section 6.1 – P&C Canada).
• Operating combined ratio was strong at 76.9%. The
2.6-point improvement from last year was driven by
lower CATs offset in part by an increase in large losses
which impacted underlying performance.
• Operating combined ratio of 90.1% in firm market conditions,
a solid performance despite challenging weather. This line is
well positioned to continue to operate at a sub-95
combined ratio, even with elevated CATs.
Operating DPW
2
3
6
,
3
4
0
1
,
3
6
8
5
,
2
1
3
8
4
7
8
3
2
6
Q4
Full year
14 INTACT FINANCIAL CORPORATION
Underlying current year loss ratio
2021
2022
2020
Operating combined ratio
%
6
.
0
5
%
5
.
6
4
%
7
.
5
4
%
5
.
9
7
%
9
.
6
7
%
2
.
3
7
%
1
.
0
9
%
8
.
3
8
%
7
.
1
8
Full year
Q4
Full year
%
2
.
5
4
%
3
.
0
4
%
3
.
1
4
Q4
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
6.4 Commercial lines
Table 7 – Underwriting results for Commercial lines1
Operating DPW
Operating NEP
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Q4-2022 Q4-2021
Change
1,288
1,144
126
51.1%
6.0%
(3.4)%
53.7%
35.3%
1,218
1,068
168
49.5%
3.9%
(6.3)%
47.1%
37.2%
6%
7%
(25)%
1.6 pts
2.1 pts
2.9 pts
6.6 pts
(1.9) pts
Operating combined ratio
89.0%
84.3%
4.7 pts
1 See Section 36 – Non-GAAP and other financial measures for more details.
2022
4,891
4,439
539
52.9%
4.3%
(5.1)%
52.1%
35.8%
87.9%
2021
Change
4,076
3,701
421
52.3%
4.0%
(5.7)%
50.6%
38.0%
20%
20%
28%
0.6 pts
0.3 pts
0.6 pts
1.5 pts
(2.2) pts
88.6%
(0.7) pts
Q4-2022 vs Q4-2021
• Premium growth of 6% mainly reflected rate actions, led
by strength in commercial property and specialty lines.
2022 vs 2021
• Premium growth of 20% was bolstered by the RSA
Acquisition. Excluding this impact, operating DPW growth
was strong at 7%, reflecting continued hard market
conditions and good momentum in specialty lines.
• Underlying current year loss ratio remained strong at 51.1% in the quarter and 52.9% for 2022, reflecting the benefit of
higher earned rates and favourable market conditions.
• CAT loss ratio of 6.0% was higher than expectations
driven by further development of losses from Hurricane
Fiona, a CAT event from earlier in the year.
• CAT loss ratio of 4.3%, in line with last year but higher than
expected, reflected the impact of Hurricane Fiona and the
May windstorms in Quebec and Ontario.
•
Favourable PYD ratio remained healthy at 3.4%,
compared to a particularly strong quarter last year.
•
Favourable PYD ratio was strong at 5.1%, in line with
historical averages.
• Expense ratio of 35.3% in the quarter and of 35.8% for 2022, lower than last year, largely due to lower variable commissions
(see Section 6.1 – P&C Canada).
• Operating combined ratio was solid at 89.0%, reflecting
a strong underlying performance. The increase of 4.7 points
from last year’s exceptional performance was driven by
higher CATs and lower favourable PYD.
• Operating combined ratio was strong at 87.9%. The
performance is better than our low-90s guidance, reflecting
the actions we have taken in favourable market conditions.
This line is well positioned to deliver a low-90s
combined ratio in the future.
Operating DPW
1
9
8
,
4
6
7
0
,
4
8
0
3
,
3
Underlying current year loss ratio
2021
2020
2022
%
8
.
5
5
%
5
.
9
4
%
1
.
1
5
%
3
.
5
5
%
3
.
2
5
%
9
.
2
5
Full year
Q4
Full year
8
8
2
,
1
4
6
8
8
1
2
,
1
Q4
Operating combined ratio
%
3
.
5
9
%
0
9
8
.
%
3
.
4
8
Q4
%
1
.
5
9
%
6
.
8
8
%
9
7
8
.
Full year
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 7 - UK and International (UK&I) segment
Underwriting activities in the UK, Ireland and Europe
INSURANCE: P&C UK&I1 (see Section 7.1 – P&C UK&I)
• We underwrite automobile, home, pet and business insurance to individuals and businesses in the UK, Ireland and Europe,
as well as internationally through our global network, with nearly £3 billion ($4.7 billion) 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, with a 3% overall market share.
• 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. We are the third largest UK home insurer, with a market share
of 8%, and the second largest pet insurer with a market share of 16%, but are a smaller player in motor with a 1%
market share.
• Commercial lines in the UK are offered through the RSA brand via brokers or directly to consumers. Specialty lines, as
part of Intact’s Global Specialty Lines, offers solutions via brokers to customers with more complex international risks.
•
•
•
•
In Ireland, we hold a top 4 position overall, with over £330 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.
In UK and European specialty lines, property and marine are our most significant lines of business.
In our strategic roadmap, we laid out our growth and profitability ambitions for the UK&I: to focus on profitable DPW
growth, and to sustainably operate at a low-90s operating combined ratio by 2025.
1 Market share and industry data are for 2021.
2022 Operating DPW 1
by line of business
2022 Operating DPW 1
by region
2022 Operating DPW 1
by distribution channel
PL
SL
CL
UK
Ireland
Europe
Brokers
Direct
38%
27%
35%
80%
9%
11%
¹ See Section 36 – Non-GAAP and other financial measures for more details.
63%
37%
16 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
7.1 P&C UK&I
Table 8 – Underwriting results for P&C UK&I1
Operating DPW
Growth in constant currency
Operating NEP
Growth in constant currency
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 Q4-2022 Q4-2021
Change
1,144
1,274
1,048
1,145
(42)
80
(10)%
(4)%
(8)%
(2)%
(153)%
2022
4,671
20212
2,538
Change
nm
4,127
2,319
123
152
67.6%
8.5%
(4.2)%
71.9%
16.6%
15.5%
58.8%
3.5%
(2.7)%
8.8 pts
5.0 pts
(1.5) pts
59.6%
12.3 pts
18.0%
15.4%
(1.4) pts
0.1 pts
32.1%
33.4%
(1.3) pts
104.0%
93.0%
11.0 pts
62.0%
6.0%
(3.6)%
64.4%
16.9%
15.7%
32.6%
97.0%
7.2
7.3
120.8%
92.8%
96.1%
90.4%
24.7 pts
2.4 pts
106.2%
90.4%
55.3%
7.0%
(2.7)%
59.6%
18.2%
15.6%
33.8%
93.4%
97.0%
90.5%
n/a
nm
n/a
nm
nm
nm
nm
nm
nm
nm
nm
nm
nm
nm
1 See Section 36 – Non-GAAP and other financial measures and Section 15.2 – Income (loss) from exited lines for more details.
2 Comparatives above (2021) only include underwriting results for the period from July 1, 2021 to December 31, 2021 as June 2021 underwriting
results were included in the Corporate segment. For more details, refer to Table 3 – Operating performance by segment
Q4-2022 vs. Q4-2021
2022
• Operating DPW decreased by 4% in the quarter on a constant currency basis. This included a 5-point negative impact
from the Sale of RSA Middle East and a 3-point negative impact from the footprint optimization of our delegated portfolio.
Excluding the above, underlying DPW growth was 4%. Continued growth in commercial lines and specialty lines, driven by
strong rate and retention, was offset by subdued growth in personal lines, reflecting our continued discipline as we navigate
competitive and evolving market conditions.
• Expense ratio of 32.1% was lower due to a decrease in
variable commissions relating to the UK December freeze
event3, partly offset by a cost of living support payment to
our UK employees.
• Operating combined ratio of 104.0% reflected the impact
of the December freeze event in personal lines, as well as
elevated non-CAT large losses and inflation pressures
across both lines of business.
• Expense ratio of 32.6% was better than expectations, due
to lower variable commissions driven by weather-related
events.
• Operating combined ratio of 97.0%, reflected profitability
actions across both personal lines and commercial lines.
Commercial lines ratio remained solid at 90.4%, while
personal lines ratio at 106.2% included the impact of
inflation pressures and elevated CAT losses.
• On July 7, 2022, we completed the sale of our 50% stake in RSA Middle East to National Life & General Insurance Company
(NLGIC). The sale had a minor impact on UK&I results and followed a strategic review of operations with a decision to focus
on our UK, Ireland and Europe business. Prior to the sale in 2022, the operating results of RSA Middle East were reported in
exited lines. See Section 15.2 – Income (loss) from exited lines for more details.
3 Our CAT announcement Press Release, dated January 12, 2023, contained an estimate for this event which was subsequently revised based on
new information, increasing our overall reported CATs by $24 million.
INTACT FINANCIAL CORPORATION 17
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
7.2 Personal lines
Table 9 – Underwriting results for personal lines – UK&I1
Operating DPW
Growth in constant currency
Operating NEP
Growth in constant currency
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Q4-2022 Q4-2021 Change
2022
2021 Change
426
517
420
516
(87)
20
(18)%
(12)%
(19)%
(13)%
(535)%
72.8%
20.6%
(7.5)%
85.9%
34.9%
61.4%
0.9%
(3.0)%
11.4 pts
19.7 pts
(4.5) pts
59.3%
36.8%
26.6 pts
(1.9) pts
1,779
1,099
1,728
1,054
(107)
32
64.6%
7.6%
(2.9)%
69.3%
36.9%
58.5%
2.7%
(1.8)%
59.4%
37.6%
nm
n/a
nm
n/a
nm
nm
nm
nm
nm
nm
nm
Operating combined ratio
120.8%
96.1%
24.7 pts
106.2%
97.0%
1 See Section 36 – Non-GAAP and other financial measures for more details.
Q4-2022 vs Q4-2021
2022
• Operating DPW declined by 12% on a constant currency basis for the quarter, of which 9 points was due to the Sale of RSA Middle
East earlier in 2022. The remainder reflected the impact of pricing reforms in UK home and our continued discipline and rate action in
competitive market conditions.
• Underlying current year loss ratio at 72.8% was elevated, driven by
continued inflationary pressures and several non-CAT large losses.
• Underlying current year loss ratio at 64.6% was higher than
inflationary pressures and
expectations, mainly due
to
subsidence claims in H2-2022.
• CAT loss ratio of 20.6% was significantly above our expectation of
2 points, driven by the December freeze event in the UK, which
resulted in increased claims mainly due to burst water pipes in homes.
• CAT loss ratio of 7.6% was well above expectations, mostly
driven by the UK December freeze, as well as the February
windstorms in the UK.
•
•
Favourable PYD was strong at 7.5%, driven by development on large
losses and post-reform experience in the UK and Ireland.
•
Favourable PYD was solid at 2.9%.
Expense ratio of 34.9% was 1.9 points better than last year due to a
decrease in variable commissions relating to the December freeze
event.
•
Expense ratio of 36.9% was slightly better than expectations,
benefitting
lower variable commissions, driven by
weather-related events.
from
• Operating combined ratio at 120.8% reflects elevated CAT losses
from the December freeze and inflationary pressures in motor and
home. Our pet business continued to perform well.
• Operating combined ratio of 106.2% was elevated, reflecting
inflationary pressures and elevated CAT and non-CAT
weather-related losses, which were approximately 8 points
higher than expected. Excluding this impact, the operating
combined ratio remained elevated in the high-90s. Profitability
actions are underway to improve results in this line of business.
Operating DPW
Underlying current year loss ratio
Operating combined ratio
4
2
4
0
5
4
6
2
4
%
4
.
8
5
%
8
.
2
7
%
0
.
9
6
Q2-2022
Q3-2022
Q4-2022
Q2-2022
Q3-2022
Q4-2022
%
3
.
8
8
Q2-2022
%
5
.
5
0
1
Q3-2022
%
8
.
0
2
1
Q4-2022
18 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
7.3 Commercial lines
Table 10 – Underwriting results for commercial lines – UK&I1
Q4-2022 Q4-2021 Change
2022
2021 Change
Operating DPW
Growth in constant currency
Operating NEP
Growth in constant currency
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
718
628
45
64.1%
0.5%
(2.1)%
62.5%
30.3%
757
629
60
(5)%
1%
-%
6%
(25)%
56.6%
5.7%
(2.5)%
7.5 pts
(5.2) pts
0.4 pts
59.8%
30.6%
2.7 pts
(0.3) pts
2,892
1,439
2,399
1,265
230
120
60.2%
4.8%
(4.1)%
60.9%
29.5%
52.7%
10.5%
(3.5)%
59.7%
30.8%
Operating combined ratio
92.8%
90.4%
2.4 pts
90.4%
90.5%
1 See Section 36 – Non-GAAP and other financial measures for more details.
nm
n/a
nm
n/a
nm
nm
nm
nm
nm
nm
nm
Q4-2022 vs Q4-2021
2022
• Operating DPW grew slightly in constant currency for the quarter. Excluding the 3-point negative impact from the Sale of
RSA Middle East earlier in 2022 and the 5-point negative impact from the optimization of our delegated portfolio, underlying
DPW growth of 9% was driven by high single-digit rate increases, and strong retention levels in a continued hard market.
• Underlying current year loss ratio at 64.1% was elevated
compared to last year due to higher non-CAT large losses
across all territories.
• Underlying current year loss ratio at 60.2% benefitted
from our pricing actions and benign non-CAT weather,
which offset inflation pressures and higher non-CAT large
losses.
• CAT loss ratio of 0.5% reflected an overall muted quarter. • CAT
loss ratio of 4.8% was broadly
in line with
expectations, despite both weather-related and several fire
related CAT losses.
•
Favourable PYD was healthy at 2.1% for the quarter and strong at 4.1% for 2022, mainly reflecting favourable development
on large losses.
• Expense ratio of 30.3% in the quarter and 29.5% for 2022, improved over last year, largely due to lower variable
commissions.
• Operating combined ratio was solid at 92.8%, though
2.4 points higher than the prior year, reflecting an increase
in non-CAT large losses.
• Operating combined ratio was strong at 90.4%. Our
commercial lines business profitability is strong, and it is well
positioned to grow in its market.
Operating DPW
Underlying current year loss ratio
Operating combined ratio
3
3
7
1
2
6
8
1
7
%
6
.
2
6
%
3
.
4
5
%
1
.
4
6
%
6
.
3
9
%
0
.
5
8
%
8
.
2
9
Q2-2022
Q3-2022
Q4-2022
Q2-2022
Q3-2022
Q4-2022
Q2-2022
Q3-2022
Q4-2022
INTACT FINANCIAL CORPORATION 19
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 US$1.8 billion ($2.3 billion) in annual operating DPW.
• 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 and sharing economy),
technology, ocean marine, inland marine (construction, transportation, and fine arts), builder’s risk, 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.
• 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, including:
• A.W.G. Dewar is our MGA platform that underwrites tuition reimbursement.
•
International Bond & Marine Brokerage is our MGA platform that underwrites surety and ocean marine.
• Highland Insurance Solutions is our MGA platform specializing in the E&S builder’s risk market.
2022 Operating DPW by business unit
Accident & Health 14%
Surety 14%
Specialty Property 11%
Technology 11%
Ocean Marine 9%
Management Liability 7%
Tuition reimbursement 6%
Inland Marine 6%
Entertainment 6%
Cyber 6%
Fin. Institutions 3%
Fin. Services 3%
Environmental 2%
Other 2%
20 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
8.1 P&C US
Table 11 – Underwriting results for P&C US1
Operating DPW
Growth in constant currency
Operating NPW
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
Q4-2022
Q4-2021
Change
564
448
460
388
551
485
23%
13%
15%
8%
14%
6%
2022
2,345
2021
1,988
1,991
1,730
1,871
1,652
83
48.0%
- %
1.7%
49.7%
16.6%
16.8%
2.0%
35.4%
85.1%
36
131%
55.2%
2.3%
1.2%
58.7%
15.7%
16.1%
2.0%
33.8%
92.5%
(7.2) pts
(2.3) pts
0.5 pts
(9.0) pts
0.9 pts
0.7 pts
- pts
1.6 pts
(7.4) pts
221
48.9%
1.5%
(0.6)%
49.8%
17.4%
19.0%
2.0%
38.4%
88.2%
117
53.3%
3.3%
(1.5)%
55.1%
16.8%
18.8%
2.2%
37.8%
92.9%
Change
18%
14%
15%
11%
13%
9%
89%
(4.4) pts
(1.8) pts
0.9 pts
(5.3) pts
0.6 pts
0.2 pts
(0.2) pts
0.6 pts
(4.7) pts
1 See Section 36 – Non-GAAP and other financial measures and Section 15.2 – Income (loss) from exited lines for more details.
Operating DPW
5
4
3
,
2
8
8
9
,
1
3
2
8
,
1
4
6
5
1
0
4
0
6
4
Q4
Underlying current year loss ratio
2021
2022
2020
%
2
.
5
5
%
2
.
5
5
%
0
.
8
4
%
4
.
4
5
%
3
.
3
5
%
9
.
8
4
Operating combined ratio
%
9
.
4
9
%
9
.
2
9
%
2
.
8
8
%
0
.
2
9
%
5
.
2
9
%
1
.
5
8
Full year
Q4
Full year
Q4
Full year
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Q4-2022 vs Q4-2021
2022 vs 2021
• Strong operating DPW growth in constant currency of 13% for the quarter and 14% for 2022, despite a 4-point negative
impact quarter-to-date and year-to-date from the exit of Public Entities. Growth was driven by our entry into the E&S builder’s
risk market (following our recent Highland MGA acquisition), increased exposures, new business, and rate increases.
• Operating net premiums written growth in constant currency of 8% for the quarter and 11% for 2022, was driven by the
strong DPW growth described above, offset by the impact of significant reinsurance quota-share cessions in our cyber and
builder’s risk segments.
• Underlying current year loss ratio was strong at 48.0% quarter-to-date and 48.9% for 2022, driven by the benefits of
our profitability actions, including rate increases and a focus on portfolio quality.
•
There were no CAT losses in the quarter.
• PYD
ratio
from our continuing business was
unfavourable at 1.7%, mainly due to increased claims
activity on one large closed account.
• CAT loss ratio of 1.5% included the impact of Hurricane
Ian and large commercial fires. It compared favourably to
last year, which was impacted by severe weather events
(including the Texas winter storms and Hurricane Ida) and
large non-weather claims in H2-2021.
•
Favourable PYD ratio from our continuing business of
0.6% was healthy throughout the year but impacted by
increased claims activity on one large closed account in
Q4-2022.
• Expense ratio of 35.4% in Q4-2022 and 38.4% for 2022 were slightly higher than last year, mainly due to a changing
mix of business, which call for higher commissions, and increased variable compensation, partly offset by the benefit of higher
earned premiums.
• Operating combined ratio improved by 7.4 points to a
strong 85.1%. Robust underwriting discipline and the
absence of catastrophe losses in the quarter helped deliver
strong results.
• Operating combined ratio improved by 4.7 points to a
strong 88.2%, reflecting a strong underlying performance
driven by our profitability actions, including our exit from
Public Entities. Our continuing US specialty business is
extremely well positioned to grow profitably in the future.
22 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 9 - Corporate
Corporate and Other
Consists of income and expenses related to activities managed centrally at the Corporate level, including:
Investment management activities (see Section 13 – Investment performance);
Treasury and capital management; and
• Corporate reinsurance (see details below);
•
•
• Other corporate activities related to the operation of the group and our public company status. These group functions
have been formed or consolidated with the RSA Acquisition, and include group legal, finance, investor relations,
corporate development, strategy and others. Even with the increased size, complexity and international scope of our
organization, we have realized significant synergies at the corporate level with the RSA Acquisition.
9.1 Corporate and Other
As part of our global risk management optimization strategy and international insurance operations, we have internal reinsurance
arrangements to optimize global reinsurance. The impact of these reinsurance arrangements is included in our consolidated
underwriting performance as follows:
Table 12 – Corporate and other
Section Q4-2022
Q4-2021
Change
2022
20211 Change
Corporate reinsurance
Operating NEP
Operating net claims
Operating net underwriting expenses
Underwriting income (loss)
Corporate underwriting income (loss)
Operating net investment income
Total finance costs
Other operating income (expense)²
Total corporate and other
13
2
-
(1)
1
1
279
(50)
(27)
203
5
(32)
(2)
(29)
(29)
220
(42)
4
153
(3)
32
1
30
30
59
(8)
(31)
50
17
1
(3)
15
15
927
(177)
(134)
631
622
(423)
(206)
(7)
(7)
706
(153)
(25)
521
nm
nm
nm
nm
nm
221
(24)
(109)
110
1 Corporate includes RSA’s Canada and UK&I underwriting results for the month of June 2021 given the timing of the RSA Acquisition (June 1, 2021).
² Other operating income (expense) can fluctuate from quarter to quarter and includes the items described above, as well as consolidation adjustments
and other operating items.
Q4-2022 vs Q4-2021
• Total finance costs of $50 million were
higher than last year, mainly due to the
Highland acquisition financing and rate
increases on our short-term debt.
• Other operating expenses of $27 million
reflected the central corporate costs and
were in line with our expected run-rate.
2022 vs 2021
• Total finance costs of $177 million for 2022 were higher than last year,
mainly due to the impact of the RSA Acquisition.
• Other operating expenses of $134 million for 2022 were higher than our
expected run-rate, mainly due to variable compensation.
•
Following the RSA Acquisition, we have consolidated our corporate activities (previously reported in part within our operating
segments) and now report these centrally. Our group functions have also benefitted from significant synergies.
• Reminder: In 2021, we had significant internal reinsurance programs in place (mainly driven by the RSA Acquisition), the
results of which were recorded in the underwriting income of our Corporate segment. These programs have been reduced in
2022.
INTACT FINANCIAL CORPORATION 23
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 10 - Prior year claims development
PYD ratio (2013-22)1
%
3
.
5
%
0
.
5
%
3
.
6
%
9
.
4
%
9
.
1
%
8
.
2
%
0
.
0
%
9
.
0
%
8
.
3
%
8
.
3
2014
2013
1 As a % of NEP.
Table 13 – Net (favourable) unfavourable PYD by segment
2017
2016
2018
2015
2019
2020
2021
2022
•
•
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 3.5%
over the last 10-year period.
By segment
P&C Canada1
Personal auto
Personal property
Commercial lines
P&C UK&I1
Personal lines
Commercial lines
P&C US
Corporate1,2
Consolidated
(Favourable) unfavourable PYD ratio3
P&C Canada
P&C UK&I
P&C US
Consolidated
Q4-2022 Q4-2021
Change
2022
2021 Change
(99)
(16)
(39)
(53)
(9)
(67)
(154)
(129)
(31)
(13)
(44)
10
-
(15)
(16)
(31)
6
(6)
(46)
(7)
28
(25)
(16)
3
(13)
4
6
(278)
(72)
(224)
(574)
(50)
(99)
(149)
(10)
-
(189)
(99)
(210)
(498)
(19)
(44)
(63)
(25)
(8)
(89)
27
(14)
(76)
nm
nm
nm
15
nm
(188)
(160)
(28)
(733)
(594)
(139)
(4.5)%
(4.2)%
1.7%
(4.0)%
(2.7)%
1.2%
(0.5) pts
(1.5) pts
0.5 pts
(4.3)%
(3.6)%
(0.6)%
(4.4)%
(2.7)%
(1.5)%
0.1 pts
nm
0.9 pts
(3.8)%
(3.3)%
(0.5) pts
(3.8)%
(3.8)%
- pts
See Note 11.5 – Prior-year claims development of the Consolidated financial statements for more details.
1 2021 above only includes RSA’s PYD results from July 1, 2021 to December 31, 2021 as RSA’s June 2021 PYD results were included in the
Corporate segment.
2 Includes the impact of Corporate reinsurance. (see Section 9 – Corporate for details).
3 As a % of NEP. See Section 36 – Non-GAAP and other financial measures for more details.
•
Favourable PYD ratio of 3.8% for 2022 was healthy across all segments and in line with our expectations.
Highlights
10.1 PYD guidance & IFRS 17 impact
• PYD can fluctuate from quarter to quarter and year to year and, therefore, should be evaluated
over longer periods of time.
IFRS 17
Effective Q1-2023
•
IFRS 17 will not impact the underlying fundamentals of our reserving approach. The
reclassification of the unwind of the discount, which will now be outside of the underwriting result
alongside investment income, will have a favourable impact on our overall PYD metric.
• We expect average favourable PYD as a percentage of operating NEP to be in the 2-4% range
in the mid term, as a result of the IFRS 17 classification changes.
24 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 11 - CAT losses and weather conditions
11.1 Net 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).
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 (2013-22)
%
3
7
.
%
5
.
1
%
0
.
5
%
3
.
3
%
7
.
3
%
4
.
3
%
6
.
3
%
2
.
3
%
2
.
4
%
3
.
4
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
• CAT loss ratio of 4.3% in 2022 was slightly
higher than 2021 and 10-year average (4.0%).
•
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.
11.2 CAT guidance
• We are increasing our expectations for annual CAT losses (net of reinsurance) to $700 million, from $600 million, reflecting
recent reinsurance renewals, including higher retention levels and co-participations (well within our risk appetite). The revised
estimate also reflects our view of long-term trends, our growing premium base, as well as concentration and management of
risk, product and geographical mix. (see Section 26.2 – Reinsurance for details).
•
Though volatility is inherent, we expect that approximately 70% of CAT losses will impact our Canadian segment (of which
approximately 2/3 is expected in Canada personal lines). Nearly 30% of the annual estimate is expected in each of the second
and third quarters, while CATs in the first and fourth quarters can vary depending in part on the timing of the onset of winter
conditions.
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. Our CAT thresholds are as follows; P&C Canada: $10 million, P&C UK&I: £7.5 million, P&C US: US$5 million and IFC aggregate
threshold: $15 million (combined impact across all segments of $15 million or more, effective January 1, 2023).
11.3 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 issue a press release quantifying the estimated CAT losses ahead of the quarterly earnings release when:
o
o
our preliminary CAT loss estimate, net of reinsurance, is more than 25% above our 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 issue a press release, it is typically issued within the first two weeks following quarter end.
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
11.4 Net CAT losses
Table 14 – Net CAT losses by segment
By segment
P&C Canada1
P&C UK&I1,2
P&C US
Corporate1
Current year CAT losses2,3
Consolidated favourable PYD on CAT losses4
All accident year CAT losses
CAT loss ratio5
P&C Canada
P&C UK&I
P&C US
Consolidated
Q4-2022 Q4-2021
Change
2022
2021 Change
77
90
-
-
167
(12)
155
104
41
11
30
186
(11)
175
(27)
49
(11)
(30)
(19)
(1)
(20)
552
246
28
-
826
(37)
789
378
162
54
82
676
(47)
629
174
nm
(26)
(82)
150
10
160
2.6%
8.5%
-%
3.6%
3.2%
3.5%
2.3%
3.8%
(0.6) pts
5.0 pts
(2.3) pts
(0.2) pts
4.2%
6.0%
1.5%
4.3%
3.3%
7.0%
3.3%
4.2%
0.9 pts
nm
(1.8) pts
0.1 pts
1 2021 above only includes RSA’s CAT losses from July 1, 2021 to December 31, 2021 as RSA’s June 2021 CAT losses were included in the
Corporate segment.
2 Our CAT announcement Press Release, dated January 12, 2023, contained an estimate for the UK December freeze event which was subsequently
revised based on new information, increasing our overall reported CATs by $24 million.
3 Net current year CAT losses exclude the impact of reinstatement premiums. See Table 56 for more details.
4 PYD on CAT losses is presented within our PYD captions and ratios.
5 CAT loss ratio includes the impact of reinstatement premiums in its numerator. See Section 36 – Non-GAAP and other financial measures for
more details.
Q4-2022 vs Q4-2021
2022 vs 2021
• Overall, CAT loss ratio of 4.3% was elevated, yet in line
with last year.
• Severe weather events impacted our three business
segments and accounted for approximately 85% of the
yearly CAT losses. Most of these were wind and water
events.
•
commercial
Large
approximately 15% of annual CAT losses.
property
fires
accounted
for
• We reported current year CAT losses of $167 million
(CAT loss ratio of 3.6%). This was higher than our
expectations for Q4 CAT losses.
•
•
In Canada, the windstorm and hail event in late December
caused widespread property damage across Ontario and
Quebec. Further development of losses from earlier in the
year also contributed to Q4 CAT losses.
In the UK&I, the CAT losses were mainly due to the UK
freeze event, characterized by a prolonged period of
freezing weather, which caused a significant amount of
burst pipe claims.
26 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
11.5 Weather conditions
The P&C insurance business is heavily impacted by weather conditions, from both a CAT and non-CAT perspective. Below, we have
described the weather events and conditions, by segment, that impacted our underwriting performance.
•
•
•
•
•
•
•
•
•
•
CANADA
In Q1-2022, temperatures were colder than average across Canada, leading to more snow and freezing rain than average.
Major cities such as Toronto and Winnipeg recorded their snowiest winters in the past 30 years. Overall, weather-related losses
were essentially in line with expectations for a first quarter.
In Q2-2022, the weather was cold in the West, warm in the East and wetter than average almost everywhere across the
country. It was relatively quiet in terms of severe weather, except for the strong May windstorms (Derecho), which caused
widespread damage in Québec and Ontario. This resulted in a significant CAT loss in Canada for Q2-2022.
In Q3-2022, most of Canada was warmer and drier than average, especially in the West. Parts of Quebec along the St.
Lawrence Valley and the Maritimes received more precipitation than average. The weather was generally quiet this summer,
except for one peculiar storm, Hurricane Fiona, which made landfall in Nova Scotia. This resulted in a significant CAT loss in
Canada for Q3-2022.
In Q4-2022, the weather was particularly warm and dry across the country during the first half of the quarter. For the second
half, there was a significant split in weather conditions between the Western and Eastern parts of Canada; it was quite cold in
the West and warm in the East. In terms of severe weather, there was a significant storm that caused widespread wind and
water damage in Eastern Canada, a couple of days before the holidays. This resulted in a significant CAT loss for Q4-2022.
UK&I
In Q1-2022, the UK&I region experienced significant weather-related losses due to three storms (Dudley, Eunice and Franklin)
during a seven-day period in February. These storms led to extensive flooding and wind damage across Northern Europe.
Gross industry losses approximate £5 billion with the UK, Germany and Netherlands experiencing the heaviest damage. IFC
losses were mainly driven by windstorms in the UK.
In Q2-2022, domestic weather was largely benign across the UK and European regions. Our Global Specialty lines were
however impacted by some large CAT weather losses.
In Q3-2022, domestic UK weather was characterised by an unusually dry summer resulting in an increase in notified
subsidence claims in personal lines. UK commercial lines included claims relating to Hurricane Ian and non-CAT weather-
related losses in Europe.
In Q4-2022, UK experienced a period of unusually severe and prolonged cold weather in December resulting in a CAT loss.
The December freeze had a significant impact on our personal home book, mainly from burst water pipes.
In Q1-2022 and Q2-2022, weather conditions were mild, with no weather CAT losses during the quarter.
In Q3-2022, weather conditions were fairly mild throughout the quarter, except for Hurricane Ian which caused widespread
damage across the southeast United States at the end of September.
US
• Q4-2022 was characterized by climate anomalies and events. However, the impact on our US lines of business was limited,
and as such, there were no weather-related CAT losses reported during the quarter.
INTACT FINANCIAL CORPORATION 27
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 12 - 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 (expressed in points of combined ratio) of our P&C Canada and UK&I 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. In addition, the COVID-19 pandemic and related lockdowns in Canada have impacted seasonality in recent years.
Table 15 – Unfavourable (favourable) seasonal indicators - in points of combined ratio
P&C Canada
2022
2021
2020
2019
3-yr average
5-yr average
10-yr average
Excluding CAT losses
Q1
Q2
Q3
Q4
P&C UK&I
1.8 pts
(2.5) pts
0.9 pts
(0.3) pts
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
3.8 pts
(1.4) pts
0.1 pts
(2.5) pts
4.7 pts
(0.7) pts
(0.9) pts
(3.0) pts
3.9 pts
(0.6) pts
(1.8) pts
(1.5) 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.
Table 16 – Unfavourable (favourable) seasonal indicators - in points of combined ratio
P&C UK&I
Excluding CAT losses
Q1
Q2
Q3
Q4
P&C US
2022
2021
2020
2019
(2.8) pts
(2.1) pts
- pts
4.9 pts
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
The expected impact of seasonality is relatively limited when excluding CATs, as results tend to fluctuate in specialty lines.
28 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 13 - Investment performance
13.1 Operating net investment income
Table 17 – Operating net investment income
Interest income
Dividend income
Investment property rental income
Investment income, before expenses
Expenses
Operating net investment income1
Average investments2
Market-based yield3
Q4-2022 Q4-2021 Change
2022
2021⁴ Change
210
74
5
289
(10)
279
126
96
9
231
(11)
220
84
(22)
(4)
58
1
59
634
305
23
962
(35)
927
426
297
17
740
(34)
706
208
8
6
222
(1)
221
35,343
36,532
(3)%
35,037
30,016
17%
3.32%
2.56%
76 bps
2.78%
2.50%
28 bps
1 See Section 36 – Non-GAAP and other financial measures for more details.
2 Defined as the mid-month average fair value of investments held during the reporting period.
3 Defined as the annualized total pre-tax investment income (before expenses), divided by the weighted-average investments.
4 2021 includes the impact from RSA’s investment portfolio from the closing of the RSA Acquisition (June 1, 2021) to December 31, 2021.
Q4-2022 vs Q4-2021
• Operating net investment income increased by 27% to
$279 million, driven by higher re-investment yields,
captured through maturity and trading.
2022 vs 2021
• Operating net investment income increased by 31% to
$927 million, driven by the growth in our investment
portfolio following the RSA Acquisition. We also continued
to capture the benefits of rising yields, bolstered by the
increased turnover of our portfolio.
• Average investments decreased by 3% compared to
last year, reflecting a negative impact from higher interest
rates and unfavourable equity markets during 2022, partly
offset by cash inflows from operations.
• Average investments increased by 17% compared to
last year, reflecting the addition of RSA’s investment
portfolio and cash inflows from operations, partly offset by
a negative
rates and
from higher
unfavourable equity markets.
interest
impact
• Market-based yield increased by 76 bps to 3.32%,
reflecting rising interest rates and the related decrease in
the market value of our fixed income portfolio.
• Market-based yield increased by 28 bps to 2.78%,
reflecting rising interest rates and the related decrease in
the market value of our fixed income portfolio.
• As at quarter-end, the reinvestment yield of 4.5% exceeded our book yield of 2.5%.
Average investments
(as of the end of period)
7
1
0
,
0
2
2
3
5
,
6
3
3
4
3
,
5
3
Operating net investment income
(for the period)
9
7
2
0
2
2
3
4
1
Operating net investment
income was $59 million
higher than Q4-2021,
driven by higher
re-investment yields.
Q4-2020
Q4-2021
Q4-2022
Q4-2020
Q4-2021
Q4-2022
INTACT FINANCIAL CORPORATION 29
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 14 - 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 and in the US, On Side Restoration
(“On Side”) as well as 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 $3 billion of written premiums. In 2022,
BrokerLink completed 24 acquisitions totalling $374 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 Coast Underwriters is the MGA platform for Marine Insurance.
o Highland is the MGA platform specializing in the E&S builder’s risk segment in the US.
• 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 outperformance objectives.
Distribution income grew by 21% to
$437 million driven by acquisitions, higher
variable commission revenues and a solid
contribution from On Side.
Our distribution income track record has
been a double-digit growth year-over-year,
over the past 5 years. We expect to
continue this momentum and grow at least
10% next year.
Distribution income
2022
2021
2020
7
3
4
2
6
3
5
7
2
Full year
Distribution income by source
BrokerLink
BFS
1
Other
37%
46%
17%
1Other includes On Side, Coast Underwriters,
Highland and Johnson Group Benefits.
30 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 15 - Non-operating results
Non-operating results include acquisition related items and elements that bear significant volatility from one period to another. These
items are not representative of our operating performance and as such are excluded from the calculation of NOI and related financial
measures.
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. The net result of these two items is referred to as the Market Yield
Effect (MYE).
Table 18 – Non-operating results
Q4-2022 Q4-2021
Change
2022
2021 Change
Net gains (losses) excluding FVTPL bonds (Table 19)
Realized and unrealized gains (losses) on FVTPL bonds
Positive (negative) impact of MYA on underwriting results
Net (MYE)
Amortization of intangible assets recognized in business
combinations
Acquisition, integration and restructuring costs (Table 48)
Gain on acquisition/ sale of business1
Income (loss) from exited lines (Table 20)
Other
(81)
54
7
61
(66)
(84)
(2)
(50)
(14)
262
(68)
72
4
(63)
(133)
-
(35)
(18)
(343)
122
(65)
57
(3)
49
(2)
(15)
4
433
(862)
1,127
265
(254)
(353)
421
(145)
(56)
Non-operating results2
1 See respective Notes 5 and 19 of the Consolidated financial statements for details.
2 See Section 36 – Non-GAAP and other financial measures for the after-tax impacts and non-operating NCI component.
(236)
(253)
17
311
516
(267)
226
(41)
(199)
(429)
204
(53)
(68)
(70)
(83)
(595)
901
306
(55)
76
217
(92)
12
381
Q4-2022 vs Q4-2021
2022 vs 2021
Non-operating losses of $236 million for the quarter, compared
to non-operating gains of $17 million in Q4-2021. The change of
$253 million was driven by net losses excluding FVTPL bonds in
Q4-2022, compared
(see
Section 15.1 – Net gains (losses) excluding FVTPL).
to significant gains
last year
Non-operating gains of $311 million compared to a non-
operating loss of $70 million last year, was mainly due to
favourable MYE and a $421 million gain from the sale of Codan
DK.
Exited lines have deteriorated year-over-year, mainly due to the US exited businesses (see Section 15.2 – Income (loss) from
exited lines).
Net gains on FVTPL bonds of $54 million for the quarter,
driven by the decrease in interest rates, primarily in the UK (see
Section 25.2 – Capital market update).
Net losses on FVTPL bonds of $862 million for the year, driven
by the increase in interest rates in Canada, the US and the UK
(see Section 25.2 – Capital market update).
Generally, we expect these net gains (losses) on FVTPL bonds to be offset by the impact of MYA on underwriting results, given our
asset-liability management. However, given the fluctuations in market yields in 2022, the MYE impact was more pronounced and
overall favourable.
INTACT FINANCIAL CORPORATION 31
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
15.1 Net gains (losses) excluding FVTPL bonds
Table 19 – Net gains (losses) excluding FVTPL bonds1
Realized and unrealized gains (losses) on:
AFS bonds, net of derivatives
Equity securities, net of derivatives
Embedded derivatives
Investment property
Net foreign currency gains (losses)
Impairment losses on AFS investments
Currency derivative hedges (RSA Acquisition)
Gain related to an investment in associate
Gain (loss) on the remeasurement of the RSA Middle
East net assets
Other
Net gains (losses) excluding FVTPL bonds
Q4-2022 Q4-2021 Change
2022
2021 Change
(37)
51
17
(56)
(45)
(37)
-
-
-
26
(81)
12
137
(6)
41
(1)
(11)
-
-
-
90
262
(49)
(86)
23
(97)
(44)
(26)
-
-
-
(64)
(343)
(49)
437
71
(17)
30
(83)
-
-
(16)
60
433
-
214
(96)
79
9
(92)
(35)
273
-
164
516
(49)
223
167
(96)
21
9
35
(273)
(16)
(104)
(83)
1 See Note 25 – Net gains (losses) to the Consolidated financial statements for further details.
Q4-2022 vs Q4-2021
Net losses excluding FVTPL bonds of $81 million reflected:
• Negative mark-to-market on our investment properties
portfolio of $56 million given the unfavourable real
estate environment;
•
•
•
realized losses on AFS bonds of $37 million as we
aimed to capture the benefit of higher yields;
impairment
$37 million;
losses on AFS common shares of
partly offset by gains on embedded derivatives and
equity securities for a total of $68 million
2022 vs 2021
Net gains excluding FVTPL bonds of $433 million, mainly
reflected:
•
•
•
•
realized gains on equity securities in favourable
markets in Q1-2022 and the repositioning of certain
common stock portfolios in Q2-2022;
net foreign currency gains in UK&I driven by a weak
GBP compared to CAD, USD and EUR;
gains on embedded derivatives of $71 million;
partly offset by impairment losses on AFS common
shares of $83 million
Reminder: Net gains of $262 million in Q4-2021, and of $516 million in 2021, included realized gains on our AFS common
shares of $137 million and $214 million respectively, positive mark-to-market on our investment properties portfolio as well as
realized gains on venture investments and broker transactions.
IFRS 9
Effective Q1-2023
•
•
IFRS 9 will result in classification changes, whereby certain equity and fixed income instruments that
were previously classified as AFS will now become FVTPL. The mark-to-market on these instruments
will now be recognized in Net income as opposed to through OCI (and as a result, it will no longer be
necessary to impair our common shares).
Though the reclassification of the equity instruments will result in increased volatility to Net income, it
will only impact the timing of the recognition of gains/losses, with no impact on BVPS or capital.
32 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
15.2
Income (loss) from exited lines
Lines are classified as Exited once we have a formal decision to exit a specific line of business and/or geographical area of operations.
This can be due to profitability concerns, the absence of a pathway to outperformance, or other strategic reasons. The results of these
lines are considered non-operating as they are no longer part of the core business and cannot be extrapolated to evaluate future
earnings. The specific treatment of each exit may vary but can include sale of the business or renewal rights to another party, or wind
down of the existing business by ceasing to renew or write new policies. Income (loss) from exited lines include the underwriting results
and operating net investment income from exited lines, with no restatement of comparatives.
Table 20 – Income (loss) from exited lines (reported in Non-operating results)
Q4-2022 Q4-2021
Change
2022
2021
Change
DPW
NEP
Net claims
Net underwriting expenses
Underwriting income (loss)
Net investment income – RSA Middle East
operations
Income (loss) from exited lines
Canada
UK&I
US
Canada
5
50
(80)
(20)
(50)
-
(50)
8
(18)
(40)
70
72
(83)
(24)
(35)
-
(35)
-
(19)
(16)
(65)
(22)
3
4
(15)
-
(15)
8
1
(24)
351
408
(387)
(170)
(149)
4
(145)
38
(62)
(121)
161
195
(172)
(76)
(53)
-
(53)
10
(43)
(20)
190
213
(215)
(94)
(96)
4
(92)
28
(19)
(101)
Income (loss) from exited lines
•
•
This includes the exit of BC auto (effective in Q4-2020) and of our CNS operations (wind-down since Q3-2021)
as part of our de-risking actions in reducing our major earthquake exposure.
These exited lines generated an underwriting income of $8 million in Q4-2022. If they had been reported within
the Canada segment, the impact would have been immaterial.
• As at December 31, 2022, we have approximately $70 million of unearned premiums in exited lines.
UK&I
•
•
This includes the legacy exits of the UK&I portfolio, as well as the Sale of RSA Middle East in 2022.
The UK&I exited lines generated an underwriting loss of $18 million in Q4-2022. This is mainly due to adverse
development in segments of our UK home book and one specific prior year large loss in the broker motor
portfolio. If exited lines had been reported within the UK&I segment, the impact would have been an
unfavourable 1.7 points on its full year 2022 operating combined ratio.
• As at December 31, 2022, we have approximately $7 million of unearned premiums in exited lines.
US
• We have exited the Programs, Architects and Engineers business (effective in Q4-2017), the Healthcare
business (effective July 1, 2019) and Public Entities (effective in Q1-2022) given the fundamental changes to
the risk profile in these segments and the profitability challenges that followed.
•
The US exited lines generated an underwriting loss of $40 million in Q4-2022. Roughly half of our Q4
underwriting loss was driven by Public Entities, as we prudently increased reserves to reflect recent loss activity,
while the other half was driven by the exited Healthcare business, due to adverse development on two large
claims. If exited lines had been reported within the US segment, the impact would have been an unfavourable
6.6 points on its full year 2022 operating combined ratio.
• As at December 31, 2022, we have approximately $3 million of unearned premiums in exited lines.
We are continuously monitoring these lines of business, and ensuring our reserves are appropriate and include a suitable level of
prudence.
INTACT FINANCIAL CORPORATION 33
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 16 - Income taxes
16.1 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 21 – Statutory income tax rates
As at December 31,
Canada1
UK
US
Corporate2
2022
26.4%
19.0%
21.0%
25.9%
2021
26.2%
19.0%
21.0%
25.9%
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, 2022, 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. On Aug. 16, 2022, the Inflation
Reduction Act was passed. It is a reduced version of the build back better plan, creating a 15% corporate minimum tax rate for corporations
with at least $1 billion in income.
In 2021, various countries and jurisdictions, including Canada, have agreed to implement the Organization for Economic Co-operation and
Development’s (OECD) Pillar Two rules, effective in 2024. 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. Certain
countries have proposed rules that remain subject to approval and ratification. Canada has not yet released draft legislation. We are actively
monitoring future developments on this proposed legislation and any potential impact on the Group.
16.2 Effective income tax rates
Our effective income tax rate (“ETR”) is different from our 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 22 – Effective income tax rate reconciliation
As at December 31,
Statutory income tax rate (Table 21)
Adjustment for different rates of other jurisdictions
Non-taxable investment income
Utilization and recognition of previously unrecognized tax benefits (Section 16.3)
Other
Operating effective income tax rate, as reported in MD&A
Statutory income tax rate (Table 21)
Increase (decrease) in income tax rates resulting from:
Adjustments on operating income1
Adjustments on non-operating income
Total effective income tax rate, as reported in MD&A
Remove: share of income tax expense of broker associates2
Effective income tax rate, as reported under IFRS
2022
25.9%
(1.1)%
(2.4)%
(3.9)%
0.3%
18.8%
25.9%
(6.4)%
(0.8)%
18.7%
(1.0)%
17.7%
2021
25.9%
(1.2)%
(2.5)%
(1.4)%
0.8%
21.6%
25.9%
(4.4)%
(1.9)%
19.6%
(0.9)%
18.7%
1 Impact calculated on the basis of pre-tax income, compared to the operating adjustments above, calculated on the basis of pre-tax operating income.
2 Includes income taxes from our broker associates, which are accounted for using the equity method (net of tax) under IFRS. We adjust in the MD&A
in order to present distribution income on a pre-tax basis.
34 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
2022 vs 2021
•
•
The Group’s operating ETR of 18.8% in 2022 was below our expectations and down from 21.6%, primarily due the
impact of the benefit arising from the recognition of additional deferred tax assets in the UK&I described below.
The Group’s total ETR of 18.7% in 2022 was down from 19.6%, also due to the impact of recognizing additional deferred
tax assets in the UK&I, as well as the impact of the non-taxable gain of $421 million resulting from the sale of Codan DK.
Refer to Note 27 of the Consolidated Financial Statements for further details related to income taxes.
16.3 Recognized deferred tax assets
December 31, 2022 vs December 31, 2021
• Deferred tax assets can be recognized on the balance sheet when it is considered probable that they will be utilized against
profits in the near future.
• As at December 31, 2022, we have recognized additional deferred tax assets in the UK due to higher expected future
profitability driven by strategic initiatives, synergies and increased investment income. This increase in recognized deferred
tax assets on our balance sheet resulted in an additional benefit of $58 million¹ to operating taxes in Q4-2022, a synergy
reflecting in part our expectation to improve the performance of this business in the future.
• An additional deferred tax asset of $128 million was also recognized through OCI in Q4-2022, relating to the unrecognized
loss position on our AFS bond portfolio in the UK, driven by increasing yields. While this had no impact to earnings, it benefited
our BVPS (see Section 28.6 – Book value per share for details).
Refer to Note 27 of the Consolidated Financial Statements for further details related to income taxes.
1 Mainly from the recognition of deductible temporary differences, not included in Section 16.4 below.
16.4 Unrecognized net tax losses
The following table presents a summary of unrecognized net tax losses as at December 31, 2022. In addition to the below summary,
we also have deductible temporary differences, unused tax credits and allowable capital losses for which no deferred tax asset was
recognized on the Consolidated Balance Sheet, refer to Note 27 of the Consolidated Financial Statements for further details.
Table 23 – 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
2022
6
2,844
352
105
3,307
2021
3
2,788
353
112
3,256
Recognition of tax benefits
• Deferred tax assets related to the net tax losses in the table above have not been recognized on the balance sheet in
accordance with accounting rules, since it is not considered probable that they will be utilized in the near future. However, we
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 favourably impact the operating ETR and total ETR.
• Any recognition of previously unrecognized tax benefits would have a favourable impact on the Group’s operating ETR in
future years.
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)
Section 17 - IFRS 17 & 9 key impacts
IFRS 17 / 9
Effective Q1-2023
•
•
Q4-2022 is the last quarter that will be reported under IFRS 4 and IAS 39. Starting in Q1-2023, results
will be reported under IFRS 17 and IFRS 9, with 2022 comparatives restated for IFRS 17. See Section
37.1 – Transition to IFRS 17 – Insurance contracts and IFRS 9 – Financial instruments
The highlights below are based on our current assessment of the impact of these two standards.
This is not a comprehensive list, as it is intended to illustrate key impacts. The highlights below are based
on our preliminary interpretation and understanding, which are subject to change.
KPI
NOIPS
Key highlights (IFRS 17 & IFRS 9)
Impact in 2023
• We expect classification changes within operating earnings, the most significant being the
reclass of the discount unwind from underwriting income to investment results.
• We also expect an impact from changes in recognition patterns and methodologies.
These are largely timing differences, with their impact depending on premium growth year-
over-year (for deferred acquisition costs), future profitability (onerous contracts) and interest
rates (discounting). Over time, we do not expect these to be significant.
Underwriting
income
• We expect an increase in overall underwriting income, driven by the reclass of the discount
unwind. In the current high interest rate environment, we expect this reclass to be material,
but with no impact to NOIPS.
• Timing differences described in the NOIPS section will also impact underwriting income.
Net
investment
results
• Net investment results will now include two distinctly presented components:
1. Operating net investment income (no change)
2. Discount unwind (reclassified from underwriting income): this reclass will generate
a significant decrease in net investment results, with a corresponding increase to
underwriting income and no overall impact to NOIPS.
EPS
• Certain equity investments will now be classified as FVTPL. The mark-to-market losses on
these investments will now be recognized in Net income as opposed to through OCI.
Although this will lead to increased volatility of earnings, we believe this reclassification is
better aligned with our objective to outperform the industry’s ROE.
Combined
ratio
Claims ratio
• The overall combined ratio will reflect the impact of the discount unwind
reclassification mentioned above (neutral to NOIPS).
• This change in presentation will not impact the underlying fundamentals of how we
manage our lines of business. We intend to report our lines of business on an
undiscounted basis, and as such we do not expect our combined ratio expectations by
line of business to be materially impacted. The effect of discounting will be reported in our
Corporate underwriting segment, and therefore will impact IFC’s overall combined ratio.
• As described in the combined ratio section, the discount unwind will now be presented
alongside investment income, outside of underwriting income. Timing differences
mentioned in the NOIPS section will also impact claims ratio, with no significant impact
expected over time.
• Other classification changes between claims ratio and expense ratio are expected, with
no impact on overall combined ratio or underwriting income.
• See Section 10 – Prior year claims development for details on PYD.
No significant
impact expected
over time
Significant
increase expected
(largely offset by
decreased
net investment results)
Significant
decrease expected
(largely offset by
increased underwriting
income)
Could result in
increased volatility
Significant
decrease expected
in overall
combined ratio
(largely offset by
decreased
net investment results)
Significant
decrease expected
in overall claims
ratio
(largely offset by
lower net investment
results and increased
expense ratio)
Expense
ratio
• Other insurance revenues (which are currently netted against underwriting expenses) will
now be included in the denominator of the underwriting ratios, increasing expense ratio with
no overall impact to underwriting income.
Increase expected
(mainly reclassification)
• As mentioned in the claims ratio section, other classification changes are expected.
• Upon transition on January 1, 2022, BVPS will increase by $2.39 (2.9%) mainly due to the
BVPS
deferral of additional indirect costs that were previously expensed as incurred.
• No impact from the investment classifications mentioned above.
Slight favourable
impact upon
transition
OROE/AROE
/ROE
• Changes from the investment classifications mentioned above could bring volatility to
AROE and ROE, with the expected increase in capital markets resulting in a positive impact
over time.
Could result in
increased volatility
s
t
l
u
s
e
r
d
e
t
a
d
i
l
o
s
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r
36 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
ENVIRONMENT & OUTLOOK
Section 18 - P&C insurance industry outlook
Summary
•
•
•
•
Over the next twelve months, we expect the firm-to-hard insurance market conditions to continue in most lines of business, driven
by inflation, natural disasters, and a hard reinsurance market.
In Canada, we expect firm market conditions to continue in personal property. Personal auto premiums are expected to grow by
mid-single-digits in response to inflation and evolving driving patterns.
In commercial and specialty lines across all geographies, hard market conditions are expected to continue.
In the UK&I, we expect the personal property market to firm as it reacts to inflationary pressures, natural disasters, and a hard
reinsurance market. Personal motor has begun to firm and we anticipate this to increase over time.
P&C insurance industry
12-month outlook
•
•
Industry premiums grew by mid-single-
digits in the first three quarters of 2022.
Industry profitability remained strong in the
first three quarters of 2022, but slightly
worse than last year, reflecting increased
inflationary pressures.
• Given the pickup in claims frequencies,
inflation and poor industry profitability prior
industry corrective
the pandemic,
to
measures have resumed.
• We expect industry premium growth to be
in the mid-single-digit range in the next
inflation and
twelve months reflecting
evolving driving patterns.
•
The industry grew by high single-digits in
the first three quarters of 2022.
• We expect
firm market
continued
conditions since this line of business is
subject to challenging weather and inflation
over time.
• We expect premium growth to remain at a
the next
level over
high single-digit
12 months.
Personal
Auto
Canada
Personal
Property
Canada
Our response
• We are actively monitoring inflation in our portfolio and
adjusting our pricing and claims strategies to maintain
control on indemnity. We are leveraging our strong supply
chain model, and our tools and analytics to reduce cycle
time.
• We continue to invest in telematics, big data, and artificial
intelligence
in data and
to maintain our advantage
segmentation. We continue to adapt our rating strategies to
evolving mobility trends.
• Our brand investments, telematics offering, and customer
driven digital leadership will continue to help grow our
business.
•
Following the recent regulatory developments in Alberta, we
are assessing the necessary actions to protect our
profitability.
• We maintain our emphasis on portfolio quality and expect
to sustain a seasonally adjusted sub-95 combined ratio over
the next 12 months.
• We actively monitor and defend against inflation within our
portfolio through pricing actions, supply chain initiatives and
increasing internalization of claims. For example, the
improve
acquisition of On Side Restoration helped
customer experience, capture margins, expand capacity,
and control costs.
• We are continuously adapting our products. Profitability
actions over time have positioned this business very well.
• We continue to execute on our claims, pricing and risk
selection strategy to achieve our objective of a 95% or better
full year combined ratio, even with severe weather.
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
Our response
Commercial
lines
Canada
•
In the first three quarters of 2022, 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 expect upper single-digit premium growth
for the industry over the next 12 months led by
specialty lines, in favourable market conditions
reinsurance costs,
rising
underpinned by
elevated CAT losses, and inflation pressures.
• We maintain our emphasis on portfolio quality and
pricing discipline, while remaining focused on loss
prevention and service excellence.
• We are adjusting our pricing and automatic indexation
for inflation factors to address inflation and to continue
outperforming in a hardening reinsurance market.
• With the addition of RSA, we have broadened our
product suite, strengthened our presence in mid-
market and specialty lines, and are well positioned to
take advantage of hard market conditions.
• While seeking
improvement
to our competitive
position, we continue to prioritise risk selection and
improvements
to pricing sophistication. We also
ensure our partner contracts reflect changing market
conditions.
• We are closely monitoring inflation and broader
macroeconomic conditions. In all segments we are
maintaining our pricing discipline and are active in
adapting our pricing strategy accordingly.
•
In motor and home for both UK and Ireland, we have
remained disciplined on pricing, with increases across
both renewals and new business.
• We continue to increase rates to offset claims inflation,
increase
tighten
standardisation of wordings to manage exposures.
conditions, and
terms and
• We remain disciplined on new business, prioritizing
quality and profitability.
• We continue to actively monitor economic conditions in
the UK and globally and are taking actions where
appropriate to manage exposures.
•
•
•
In the first three quarters of 2022, industry
premiums in the UK and Ireland contracted by
low single-digits with continuing
intensely
competitive conditions in motor and home.
In UK and Ireland, we have seen motor
premiums begin to increase, and we expect
inflation and reinsurance pressures to drive
further rate increases into 2023.
In UK property, we expect property claims
inflation, challenging weather conditions, and a
hard reinsurance market to drive rate increases
over
Ireland, property rates are
experiencing low single-digit increases.
time. In
• UK&I market conditions remain hard with rate
increases driven by CAT losses (including
recent weather events),
COVID-19 and
tightening capacity and growing inflationary
pressures.
• We expect the UK and EU commercial industry
premium rates to grow at an upper single-digit
level over the next 12 months, driven by industry
claims, inflation pressures and a hardening
reinsurance market.
UK&I
Personal
lines
UK&I
Commercial
lines
38 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
Our response
US
Commercial
lines
•
The US commercial P&C industry continues to
experience hard market conditions across
lines, including sustained price increases and
tightening terms and conditions.
in
the near
term, given
• We expect favourable market conditions to
persist
rising
reinsurance costs and elevated CAT losses,
both exacerbated by the impact of Hurricane
Ian, as well as industry concerns over price
inflation, and geopolitical and economic
uncertainty.
•
The US commercial P&C industry posted low
double-digit growth in the first three quarters of
2022, fueled by rate increases and growing
exposures. The industry combined ratio for the
first three quarters of 2022 was estimated in the
mid-to-high 90s.
• We expect industry premium growth at an
the next
level over
upper single-digit
12 months.
• Our objective remains to expand our US specialty
business while outperforming on profitability.
Growth opportunities are being successfully
pursued in the segments of the portfolio performing
at or above expectations, and focused corrective
actions are being applied to underperforming
segments.
• 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 90s combined ratio in
line with our near-term objectives.
• Capital markets are expected to remain volatile
due to inflation trends, increased probability of
recession, and the war in Ukraine.
•
Interest rates remain high. As a result, we
expect the industry’s pre-tax investment yield
to increase as portfolios roll over.
Investments
• Our investment portfolio is managed like the rest of
our business, for the long-term. Our investment
management team seeks to maximize after-tax
limiting
returns, while preserving capital and
volatility.
• We continuously seek to optimize the composition
of our investment portfolio, considering factors
including risk, return, capital, regulation and tax
legislation changes.
• Over the last 12 months, industry profitability in
Canada and the UK was helped in part by
favourable market conditions and strong
favourable prior year development. While
market conditions were also favourable in the
US, industry profitability was hampered by
higher auto severity and elevated catastrophe
losses.
•
The RSA Acquisition expanded our leadership
position in Canada, created a leading specialty
lines platform with international expertise, and
provided 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.
Overall
• High pre-pandemic combined ratios, inflation
trends and climate change drive
the
continuation of favourable market conditions.
• We expect our industry benchmark ROE1 to be
in the high single-digit range in the next
12 months.
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
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 19 - Insurance industry at a glance
19.1 P&C insurance in Canada
Highly
fragmented
Evolving
and
growing
over time
Broad
distribution
channel
•
•
•
In 2021, the P&C market grew by 8%, driven by rate increases, to $69.5 billion in annual premiums,
representing close to 3.5% of gross domestic product (GDP).
The top five insurers represent 49% 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 (estimated at close to 90%) 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 (estimated at close to 50%) as consumers seek digital solutions
for personal property and auto products.
•
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.
Regulated
market
• 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). There is no private personal auto insurance provided
in British Columbia, Manitoba and Saskatchewan, as coverage is provided through government-owned
corporations.
• 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).
2021 Industry DPW
by line of business
2021 Industry DPW
by region
PA
PP
CL
Ontario
Québec
Alberta
Other
2021 Industry DPW
by distribution channel
Brokers and MGAs
Direct to consumers
42%
$69.5B
35%
23%
20%
17%
$69.5B
19%
44%
40%
$69.5B
60%
40 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
19.2 Performance against the Canadian P&C benchmark
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 24 – Canadian P&C Industry – IFC outperformance (underperformance)
YTD
Q3-2022
Full year
2021
Full year
2020
Full year
2019
DPW growth
IFC: P&C Canada1
Outperformance (underperformance) vs Industry benchmark
18.9%
10.8 pts
20.3%
13.2 pts
9.4%
2.0 pts
9.7%
- pts
Combined ratio
IFC: P&C Canada1
Outperformance (underperformance) vs Industry benchmark
84.4%
3.6 pts
85.8%
(0.5) pts
91.5%
5.0 pts
97.5%
3.6 pts
1 For comparison purposes, IFC DPW growth and operating combined ratio are based on financial statements presentation.
YTD Q3-2022
relative
performance
• Our growth outperformance was 10.8 points, mainly due to the RSA Acquisition. Excluding this impact, our
growth would be approximately 6.7%, slightly below the industry benchmark.
• Our combined ratio outperformance was 3.6 points, due to our outperformance in both the loss and
expense ratios.
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
19.3 P&C insurance in the UK&I
Overall
•
•
In 2021, the P&C UK market grew by 3.1% to £86 billion in estimated annual premiums.
IFC underwrites automobile, home, pet and business insurance to individuals and businesses in the UK,
Ireland and Europe, as well as internationally through our global network.
• Roughly 80% of the UK&I segment premiums are written domestically in the UK or through the Specialty
London Market. Our Irish and European books experience broadly similar market conditions to the UK and
London Market respectively.
UK
Personal lines
market
• Mature and highly developed personal lines market. Motor is the largest segment, with annual premiums of
£12 billion. The home insurance market is worth around £7 billion, while pet insurance adds another £1.4
billion.
• New business is primarily distributed through price comparison websites and aggregators, which have grown
•
•
substantially over the last two decades, and also written through partnerships deals.
Technical excellence in pricing and claims, along with scale and technology, are the key differentiator for the
most successful players.
‘Price walking’ regulations in home and motor became effective on January 1st 2022, aiming to align new
business and renewal quotations. It has led to new products introduced in the marketplace, which has
amplified the competitive landscape.
INTACT FINANCIAL CORPORATION 41
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
UK
Commercial
lines
market
•
•
The UK domestic commercial lines represents £20 billion in annual premiums. The market is primarily
comprised of motor, liability and property risks, and competitive with most leading multinationals having a
major presence.
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.
• High quality broker service remains essential for insurers’ success in the UK commercial lines.
•
The London Specialty Market represents £45 billion in annual premiums.
UK
Specialty
lines
market
• Growth has been strong in the market, primarily driven by the hard market conditions over recent periods.
Hard reinsurance rates and reduced capacity for lower layers have favoured insurers with strong risk selection
and robust balance sheets.
• Profit opportunities continue to be driven by disciplined trading, a sustainable underwriting strategy, and the
achievement of adequacy through positive rate movements.
Regulated
market
•
The UK non-life insurance industry is regulated by two regulatory bodies, the PRA and the FCA. The PRA’s
mandate is to provide supervision to ensure the safety and soundness of financial institutions, while the FCA’s
mandate is to provide oversight on pricing practices and product offerings.
2021 UK Industry DPW
by line of business
2021 UK Industry DPW
by distribution channel (PL)
2021 UK Industry DPW
by distribution channel (CL)
PL
CL
SL
Brokers
Direct
Partners
Brokers
Direct
Partners
52%
£86B
24%
24%
49%
£20B
13%
38%
9%
3%
£20B
88%
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. Market data for Specialty Lines refers to insurance based on Lloyd’s of London annual report, a report by the
International Underwriting Association and individual reports and accounts of Protection & Indemnity (“P&I) Clubs based in the London Market
42 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
19.4 Performance against the UK P&C benchmark
The industry benchmark consists of a group of listed peers in the P&C industry, for which industry data is compiled from each insurers’
own reports and accounts.
Table 25 – UK P&C Industry – IFC outperformance (underperformance)
Underwriting performance
DPW growth
IFC: P&C UK
Outperformance (underperformance) vs Industry benchmark
Combined ratio2
IFC: P&C UK
Outperformance (underperformance) vs Industry benchmark
H1-2022
7.4%
0.6 pts
95.7%
(2.5) pts
Full year
20211
(0.4)%
(7.5) pts
94.6%
(2.7) pts
1 Full year 2021 results are on a pro-forma basis: RSA’s H1-2021 results pre-acquisition in addition to RSA’s H2-2021 results as part of IFC.
2 Excluding the risk margin and discount impact for comparability purposes
H1-2022
relative
performance
• Our growth was 7.4 points, an outperformance of 0.6 points as we hold a lower proportion of personal
lines business compared to our peers. Hard market conditions continue to support strong growth in
commercial and specialty lines, while challenging market conditions continue to impact personal lines.
• Our combined ratio was 95.7%, underperforming by 2.5 points. Strong performance in UK commercial
lines (including Specialty) was offset by an underperformance in UK personal lines, due to our business mix
(high proportion of intermediated business) and higher expenses (primarily technology costs).
19.5 US specialty market
Highly
fragmented
with no clear
leader
Niche market
with lucrative
potential
•
The US specialty insurance market accounts for approximately 47%, or more than US$180 billion, of the
total commercial P&C insurance market.
• US commercial specialty insurance industry is fragmented, with the largest player capturing less than 7%
market share in 2021.
• Outside of the top nine 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%.
•
•
•
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 4.9% 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.
INTACT FINANCIAL CORPORATION 43
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
19.6 Performance against the 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 26 – US P&C Industry – IFC outperformance (underperformance) vs industry benchmark
YTD
Q3-2022
Full year
2021
Full year
2020
Full year
2019
DPW growth (in local currency)
IFC: US Commercial
Outperformance (underperformance) vs Industry benchmark
13.6%
(1.1) pts
16.7%
(0.4) pts
9.6%
1.7 pts
8.0%
(1.2) pts
Combined ratio1
IFC: US Commercial
Outperformance (underperformance) vs Industry benchmark
89.9%
1.2 pts
93.9%
(2.0) pts
93.8%
4.7 pts
92.8%
2.3 pts
1 Excluding the risk margin and discount impact for comparability purposes.
YTD Q3-2022
relative
performance
• Our reported DPW growth of 13.6%, trailed behind the industry benchmark, as substantial growth
continued among peers. Excluding the negative impact from the exit of Public Entities, our reported growth
would have been 18%, above the industry benchmark.
• Our combined ratio outperformance was 1.2 points as our strong underlying loss ratio performance
continued to compare favourably to peers, tempered by our expense ratio relative underperformance
(business mix and seasonality in earned premiums).
44 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
STRATEGY
Intact has three strategic objectives that define what we aim to achieve, which contain both financial and non-financial measures of
success. Our strategic roadmap outlines how we will achieve our objectives. This section highlights our progress on execution of
our strategy and against key financial and non-financial measures. 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. ESG factors have always been embedded in our strategy and
are included throughout this section.
Section 20 - What we are aiming to achieve
Section 21 - Our strategic roadmap
INTACT FINANCIAL CORPORATION 45
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
21.1 Progress on our strategic roadmap
Expand our leadership position in Canada
o
In Q4 2022, our mobile apps saw over 4.5 million visits by customers who increasingly choose to engage digitally via the
app, where more than half of online transactions are completed. Features like UBI self-enrolment, launched in 2022, are
proving to be effective in driving UBI take-up and digital engagement.
o Our brands continue to be top of mind when it comes to insurance for Canadians. At the end of 2022, Intact Insurance
maintained its position as the most known auto + home insurance brand nationally with belairdirect ranking #3.
o BrokerLink further bolstered its footprint in Canada with 6 acquisitions in Q4-2022, bringing the total for the year to 24
acquisitions representing $374 million in direct premium written. In 2022, BrokerLink surpassed $3 billion in DPW, putting us
on track to hit our goal of $5 billion by 2025.
Strengthen our leading position in the UK & Ireland
o We improved our outperformance posture in Q4 with the exits of non-strategic relationships and certain SME segments in
the UK. This builds on our footprint rationalization efforts seen earlier in 2022, where we divested our businesses in Middle
East and Denmark.
o We strengthened our broker proposition with a centralized broker support team and an enhanced online broker portal,
continuing our focus on making it easier and more efficient for our brokers to do business with us.
o
In Ireland, we maintained our focus on profitability and expanding distribution. A platform upgrade in our digital channel
for personal lines was delivered in 2022 and will enable future growth. Our focus on the mid-market segment and solid broker
relationships supported strong growth in commercial lines.
Build a Specialty Solutions leader
o Marine was established as the first Global Franchise. We continue to deliver on expertise and service at the local level with
the benefits of accessing the knowledge and capabilities from a team closely connected at a global level.
o Equity investment in Cartan Trade reinforces our commitment to the European market and brings us closer to the trade
credit market and operations within Europe, while sharing the trade credit insurance expertise from our Canadian operation.
o Following the acquisition of Builder’s Risk MGA Highland Insurance earlier in 2022, we commenced providing underwriting
capacity to Highland in Q4.
Transform our competitive advantages
o Claims adjusters in Canada now benefit from AI-powered call performance coaching to improve future outcomes and
experiences for our customers. With close to 500 data, AI, machine learning and pricing experts, the Intact Data Lab has
deployed almost 300 AI models in production to-date, helping transform our outperformance advantage.
o We doubled-down on the Intact Service centre model in Canada, opening 11 partner-operated locations in 2022. These
new centres drive outperformance in claims by exclusively servicing Intact customers with an enhanced customer experience
that is faster and more convenient while strengthening controls on indemnity.
o 2022 saw two of the top ten costliest natural disasters on record in Canada and On Side, our fully-owned property
restoration subsidiary in Canada, continued playing a critical role in helping customers get back on track with their platform
of 1,500+ employees across 44 locations nationally.
46 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Invest in our People
o For the seventh consecutive year in Canada, and fourth in US, Intact has been named a Kincentric Best Employer in Canada
and the US for 2022. We also launched the Kincentric survey with all employees in the UK&I region in 2022; with strong
employee participation rates, we observe engagement levels in-line with insurance peers in the UK.
o We made several senior leadership appointments:
o Pete Weightman, formerly Chief Underwriting Officer (CUO) for North America, was appointed CUO for specialty
lines globally, reflecting the alignment of our teams across our global organization.
o Nathalie Dufresne, formerly SVP Commercial Lines Canada, was appointed CUO, UK&I. Nathalie brings over
30 years of experience in pricing, underwriting, as well as operations and planning.
o Bringing deep experience in human resources and organizational transformation, Georgina Farrell was appointed
as Chief People Officer in the UK&I.
o Keith Champagne was appointed Chief Actuary, Intact Specialty Solution. Keith brings extensive experience in
pricing, reserving and corporate development.
o
In recognition of our ongoing commitment to diversity, equity, and inclusion:
o
o
In Canada, our Platinum Certification from Women in Governance (WiG) was again recognized for 2022.
In the UK&I, we achieved the Menopause Friendly accreditation, a recognized standard of achievement that
satisfies a qualified independent panel of judges that the organization has gone above and beyond to change the
lived experience of those going through menopause.
Social Impact & Environment, Social, Governance (ESG)
Throughout 2022, we built upon our past momentum and achieved some new milestones:
o We launched our 5-part Climate Strategy including a commitment to achieve Net Zero by 2050 and halve our operations
emissions by 2030.
o We renewed our sponsorship commitment to the Intact Centre for Climate Adaptation and launched a new partnership with
the Nature Conservancy of Canada focused on conserving and harnessing the adaptation and carbon capture power of
wetlands.
o We maintained our commitment to DEI in alignment with our strategic objective to be representative of the communities we
serve. The proportion of the Board represented by women has been consistently above 30% since 2013 and today it is 46%.
In Q4, we continued making good progress on ESG:
o
In Q4 2022, RSA reinforced its commitment to contributing to efforts that reduce carbon emissions and accelerate the
transition to a low carbon future by updating its Low Carbon Policy. By 2030, 70% of RSA’s underwriting portfolio for energy
production is targeted to be low carbon.
o The Intact Centre on Climate Adaptation added two new members to its advisory committee. The Honourable Senator
Rosa Galvez and Conrad Sauvé, President and CEO of the Canadian Red Cross, join an influential group of International
climate and business leaders to provide strategic counsel to the Intact Centre team.
o Employees in Canada donated over $2.3 million to over 900 charities during our annual Generosity in Action
campaign, where employees make contributions to causes close to their heart. Intact matched their generosity with donation
to local United Way/Centraide organizations to support vulnerable communities across the country.
See Section 23 – Climate change for more details. More information on IFC’s Social Impact & ESG performance will be
available in our 2022 Social Impact Report, published in April 2023.
INTACT FINANCIAL CORPORATION 47
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
21.2 RSA integration update
Financial
update
• Value creation from the RSA Acquisition has exceeded expectations to date. We remain on track to
realize $350 million of pre-tax annual run-rate synergies within 3 years.
Q4-2022 update
Canadian
operations
• As at December 31, 2022, we estimate our run-rate at $260 million annualized, generated by expense synergies,
additional value creation and our underwriting actions.
•
In Q4-2022, we recognized an additional tax synergy of £36 million ($58 million) from deferred tax assets
recognized, driven by the improved outlook on profitability in the UK&I. See Section 16 – Income taxes for
more details.
• RSA contributed 16% accretion to NOIPS in 2022, on track to reach approximately 20% in 2024. Accretion
in the quarter was hampered by the challenging weather in the UK&I, offset in part by the additional benefit of
the recognition of deferred tax assets mentioned above.
• Policy conversion in the broker channel, outside of specialty lines and Johnson, has been completed.
•
•
•
In direct distribution, 12% of Johnson’s retail policies have converted to belairdirect thus far. Retention
continues to be aligned with, or better than, historical RSA experience. Conversion of Johnson’s affinity
policies will begin in Q4-2023, with a focus on the customer journey and digital capabilities. Engagement with
affinity partners similarly remains strong
The specialty lines conversions will begin in Q2-2023 by line of business and segment, with continued
progress on product and vertical plan development.
In claims, nearly all RSA Canada claims are being handled by our internal adjusters, and 70% of files are
handled by our in-house legal team. We completed the first claims conversion in Q4-2022 and will continue to
convert claims through 2023.
48 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
21.3 Global Specialty Lines (GSL)
• Our specialty lines results are embedded in the commercial operations of each segment (Canada – Section 6, UK&I – Section 7
and US – Section 8).
• Specialty insurance 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).
These insurance products and services are offered through independent agencies, regional and national brokers, as well as
wholesalers and managing general agencies.
• Each business unit is managed by an experienced team of specialty insurance professionals focused on a specific customer group
or industry segment. 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.
•
Through our platform in the US, Canada, the UK and Europe, we can access over 70% of the global specialty lines market, or an
estimated $375 billion in annual premiums. The market is highly fragmented, which brings significant opportunity to expand our
capabilities and grow our profitability. Most recently, the RSA Acquisition was a key milestone in our transition from a North
American to a truly global platform. Over the last 5 years, we have grown to over $5 billion of premium, with over 20 different
verticals across our geographies.
• We have a strong and growing portfolio of MGAs, bringing deep expertise in unique segments, a compelling customer value
proposition and long-standing relationships in the industry.
•
In our strategic roadmap, we laid out GSL growth and profitability ambitions for the long term: to reach $10 billion in
operating DPW by 2030, performing at a sub-90 operating combined ratio.
Operating DPW (2022)1
2022
Operating combined ratio1
Canada
UK&I
US
43%
$5.5B
34%
23%
Operating DPW in constant currency
grew by 8% to $1.3 billion in Q4-2022
and by 12% to $5.5 billion in 2022 with
strength across all geographies.
GSL delivered a strong combined
ratio of 86.8% in Q4-2022 and 86.2%
in 2022.
Canada
UK&I
US Global
%
9
.
1
9
%
8
.
6
8
%
4
.
5
8
%
3
.
2
8
%
6
.
8
8
%
2
.
6
8
%
0
.
6
8
%
3
.
3
8
Q4
2022
1 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. Combined ratio for Global Specialty Lines is undiscounted and excludes the impact of risk margin.
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 22 - Progress on our two financial objectives
22.1 Grow NOIPS by 10% yearly over time
NOIPS performance over time (in dollars)
CAGR of 24% (2019-22), 16% (2017-22) and 9% (2012-22)
12.41
11.88
9.92
5.00
3.62
5.67
6.38
4.88
5.60
5.74
6.16
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
• Over the past 3 and 5 years, our NOIPS grew at a CAGR of 24% and 16% respectively, benefiting from
strong underwriting and distribution results. We remain confident in our ability to grow NOIPS by 10%
annually, over time.
• The RSA Acquisition has created significant value for our shareholders. We have achieved our target of high
single-digit accretion in the first 12 months and expect to reach approximately 20% of accretion within 36
months.
22.2 Exceed industry ROE by 5 points
ROE outperformance versus the industry over time (in points)
6.2
4.1
8.2
5.1
5.8
8.3
6.9
6.5
7.1
5.3
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Our final 2022 outperformance results will be available in Q2-2023
• During the last decade, we have exceeded the industry ROE by a yearly average of 640 basis points, better
than our target. Furthermore, we have achieved our objective of exceeding the industry ROE by 500 bps in
nine out of the last 10 years.
•
In the past three years, we have exceeded the industry ROE by 630 basis points on average, with an average
ROE of 15.8% compared to 9.5% for the industry, as our profitability actions in all lines of business were
taken ahead of the industry.
• We continue to target 500 bps of ROE outperformance every year driven by our underwriting, claims, as
well as capital and investment management activities.
50 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 23 - Climate change
At IFC, we are here to help people, businesses, and society prosper in good times and be resilient in bad times. This is our purpose,
and it drives everything we do. As a leading P&C insurer on the front lines of climate change, we have taken a leadership role in
strengthening society’s climate resilience. For over a decade, we have been spearheading applied research and investing in
community-level projects to demonstrate the concrete benefits of adaptation. In 2022 we launched our Climate Strategy, acknowledging
that the decades ahead will also present opportunities to win as a business, and publicly committed to achieving Net Zero.
In the following sections on climate change, we outline our approach to governance (Section 23.1), how we manage physical and
transition risk (Section 23.2), and our “help and win” strategic framework (Section 23.3). IFC’s TCFD report (Taskforce for Climate-
related Financial Disclosures) outlines these elements as well as our Scope 1, 2, and 3 emissions profile in greater detail, and is
available in our annual Social Impact Report.
23.1 Governance
Climate change risk is reviewed in our Enterprise Risk Management (ERM)1 process to ensure identification, assessment, response,
monitoring and reporting of risks. Our Senior Management team, including our CEO, provides direct leadership on our strategy and
advocates publicly for climate action with business associations, government officials, and regulators.
Our Chief People, Strategy and Climate Officer leads our Climate Strategy to ensure ongoing integration of climate change and climate
risk management into our central strategy. Our newly formed climate team provides technical expertise, advisory services, and program
management across the organization. Delivery of our Climate Strategy is also directly tied to executive compensation for all executives
at Intact.
Within our Board of Directors2, climate change is an integral accountability of the Board’s Risk Management Committee (RMC) and
Compliance Review & Corporate Governance Committee (CRCG). The RMC oversees the assessment and monitoring of the risks
related to climate change. The CRGC oversees compliance and climate-related disclosures. The Board as a whole is engaged in
shaping the strategy as well as oversight.
1 See Section 33- Enterprise Risk Management for more details
2 See Section 31- Risk Management structure for more details on our Board of Directors and Committee structures
23.2
Impact of climate change on our business
Since climate change increases risk in society, it also creates opportunities for insurers who are in the risk business. Over the years
we continued to innovate our products and services to meet the growing demand for protection against weather-related loss and doing
so with a track record of sustainable growth and profitability. It is through this lens that we should consider the impacts of climate change
on our business, both as a threat but also as an opportunity.
As discussed in Section 33.6 – Top and emerging risks that may affect future results, the ERM Committee identified climate
change as a top risk facing IFC. Below, we provide context on the practices we deploy to mitigate this risk.
Below, we lay out our approach to Physical and Transitional risks, which are inherently connected. The pace at which society is able
to transition to a low-carbon and more resilient future will influence the impact and magnitude of Physical Risk.
Physical Risk
Assuming physical risk from our customers is core to our business. Our response to climate change has long been embedded in our
strategy and our approach to risk management. Our approach to physical risk encompasses initiatives that we take in the short-to-mid-
term, as well as actions with a longer-term horizon which are core to our climate strategy in itself. We use our expertise to keep pace
with an evolving climate. To accomplish this, we have implemented ongoing underwriting initiatives to:
INTACT FINANCIAL CORPORATION 51
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Pricing & risk
selection
Product
• Re-price our products annually at renewal, given our policies are 12 months in duration. This
ensures our charged prices are responsive to the latest weather-related trends which we assess
and action in our property business quarterly.
• Continuously invest in and redefine how we select and price risk with data and predictive analysis,
leveraging the expertise of 500 experts across AI, machine learning, actuarial science, and data.
• 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 is more
exposed to major events and use facultative and per risk reinsurance to limit exposure on any one
risk.
• Continually evolve our products to account for new climate realities, such as unbundling our
enhanced water damage product to make flood protection more accessible.
•
Transform our business to adapt to evolving climate risks. For example, we redesigned our
personal property business to account for the increased risk of flood.
Supply chain &
claims
• Capitalize on opportunity in climate change by expanding our supply chain capacity through the
acquisition of On Side Restoration, one of the largest players in restoration in Canada.
• Use actuarial tools to support the claims operations for rapid CAT assessment including the number
of claims, nature of claims, geo-coded maps & supply-chain requirements.
Loss prevention
•
•
Invest in 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 to protect their
homes and avoid potential automobile accidents caused by bad weather conditions.
• Use data to prevent losses. For example, our proprietary forecast system identifies properties at
risk of roof collapse after snowfall. We offer customer subsidies to incentivize snow removal for
loss prevention.
Enhanced Loss
Modelling
• Enhance segmentation to understand evolving risks. Within Intact’s Data Lab, the Centre for
Climate and Geospatial Analytics (CCGA) uses weather, climate, and topographic data along with
machine learning models to develop risk maps to assess risk to our underwriting portfolio.
• Rely on specialized talent within the CCGA with expertise across meteorology, geomatics, data
science, and actuarial science.
• Set risk tolerances based on catastrophe model output and use it to determine pricing.
Transition Risk
The transition to a low-carbon future has the potential to negatively impact certain businesses, adding risk to the assets we hold
and customers we insure in certain sectors. To mitigate this, we:
Intact Investment
Management (IIM)
•
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.
52 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Intact Investment
Management (IIM)
(continued)
• 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 2022, IIM portfolio managers held 125 meetings to engage in discussions on company
climate resilience.
• Enhanced our internal analysis and understanding of potential impacts of transition risk on specific
industries within our asset portfolio, building on IFC’s participation in recent Bank of Canada and
Bank of England projects to explore the risks posed by climate change and test the resilience of
the financial services sector.
• Recognize the need for continued investment in data and modelling, given the stochastic and
uncertain nature of climate risk analysis.
• Confirmed the benefits of our diversified, high-quality portfolio as well as our investment policy to
invest in companies with strong transition plans and remain ready to adjust our security selection,
sector/segment allocation, and asset mix – as appropriate – when we see evolving climate risk
trends.
•
Leverage our climate risk assessment framework for the underwriting process across commercial,
personal and global specialty lines of business.
• Hold our leaders accountable to identify, assess, measure and monitor climate risks and identify
opportunities in our insurance business.
Transition Risk
Assessment for
Investments
Transition Risk
Assessment for
Underwriting
23.3 Climate Strategy
IFC actively plays a leadership role in strengthening climate resilience on the front lines – our communities. We created the Intact
Centre on Climate Adaptation at the University of Waterloo in 2015, an applied research centre which works with homeowners,
communities, governments, and businesses in Canada to reduce the risk of climate change through the incubation and mobilization
of adaptation action. Our support of initiatives in climate adaptation accelerated in 2022 with total support for climate adaptation
action surpassing $25 million since 2010.
In April 2022, we launched our 5-part Climate Strategy which expands our focus beyond adaptation. It focuses on our expertise,
scale, and resources to address societal challenges with climate change while looking to seize market opportunities for IFC. At the
same time, we revised our strategic objectives to include our commitment to become Net Zero by 2050 across our business, and
to halve our operations emissions by 2030.
Our plan for helping 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.
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.
• Collaborating with governments and industry to help accelerate climate action.
Leveraging our platform to shape behaviour.
Highlights of our climate strategy progress can be found in our annual Social Impact Report.
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
FINANCIAL CONDITION
Section 24 - Financial position
Total assets
Investment portfolio
$65 billion
$36 billion
BVPS growth
for the last 12 months
(2)%
Adjusted debt-to-total
capital ratio
21.2%
24.1 Balance sheets
Table 27 – Balance sheets
As at
Assets
Cash, cash equivalents
Short-term notes
Fixed-income securities
Preferred shares
Common equities
Investment property
Loans
Total 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
Total liabilities and equity
Section
December 31,
2022
September 30,
2022
20
December 31,
2021
25
26.2
26.1
28.3
1,010
1,786
25,309
1,421
4,598
476
1,001
35,601
8,028
5,709
2,062
8,050
5,509
-
64,959
25,144
11,997
4,522
7,611
49,274
7,542
1,322
269
7,352
(1,085)
15,400
285
15,685
64,959
1,310
1,580
24,464
1,477
4,743
503
952
35,029
7,853
5,291
2,056
8,050
6,180
-
64,459
24,512
12,001
4,796
7,715
49,024
7,541
1,322
237
7,679
(1,629)
15,150
285
15,435
64,459
2,276
516
24,791
1,847
5,686
634
930
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
66,349
IFRS 17
Effective Q1-2023
•
Upon transition to IFRS 17 on January 1, 2022, the preliminary impact to total equity attributable to
common shareholders is an increase of approximately $420 million (2.9%) (after-tax). The main driver
of this increase is the deferral of additional indirect costs which were previously expensed as incurred.
Refer to Section 37 – Accounting and disclosure matters.
54 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
25.2 Capital market update
The war in Ukraine has caused instability in the global economy and markets. We have no direct investment exposure in Russia and
Ukraine and are vigilant in our adherence to sanctions. The situation will continue to be closely monitored for any indirect impacts that
could emerge, such as economic impacts and potential supply chain disruptions.
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.
Table 28 – 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 Index
5Y AA Corporate spread
Strengthening (weakening) of:
USD vs CAD
GBP vs CAD
Q4-2022
Q4-2021
2022
2021
5%
2%
14%
(5)%
(14) bps
(9) bps
(77) bps
12 bps
(2)%
6%
6%
8%
9%
-%
25 bps
30 bps
17 bps
9 bps
-%
(0.5)%
(9)%
(13)%
(7)%
(22)%
221 bps
274 bps
280 bps
67 bps
7%
(4)%
22%
32%
26%
14%
83 bps
90 bps
47 bps
19 bps
(1)%
(0.4)%
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
25.3 Our portfolio remains of high quality
2022 Highlights
•
The $0.6 billion increase in our investment portfolio during the quarter reflected a
positive impact of lower market yields on fixed-income securities, positive market
returns and a stronger UK pound sterling.
• Our fixed-income portfolio includes high quality Government and corporate
bonds. Approximately 81% of our fixed-income portfolio was rated ‘A-’ or better as at
December 31, 2022 (83% as at December 31, 2021). On a consolidated basis, the
weighted-average rating of our fixed-income portfolio was ‘AA’ as at December 31,
2022 and 2021. The average duration of our fixed-income portfolio was 3.41 years as
at December 31, 2022 (3.52 years as at December 31, 2021).
• 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,
2022 and 2021.
Investment portfolio
by geography
(country of incorporation)
Canada
US
UK
Other
7%
12%
25%
$36B
56%
25.4
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, 2022 (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,
2022
September 30,
2022
December 31,
2021
10%
75%
4%
7%
1%
3%
67%
15%
14%
4%
9%
74%
4%
9%
1%
3%
68%
14%
14%
4%
9%
72%
5%
9%
2%
3%
68%
14%
14%
4%
Given current volatility in the markets, our asset mix is de-risked compared to previous quarter:
• Higher weight on cash, cash equivalents and short-term notes; and
• Equities exposure below target.
Our fixed income strategy remains the same: conservative credit exposure and stable interest rate duration.
The decrease in market value of our fixed income portfolio, driven by the increase in interest rates, has been offset by inflows from
operations.
56 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
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,
2022
Total
Sept. 30,
2022
Total
Dec. 31,
2021
Government
Financials
ABS and MBS
Industrials
Consumer staples
Communication Services
Utilities
Consumer discretionary
Energy
Materials
Information technology
Health care
38%
25%
14%
4%
3%
2%
4%
2%
1%
1%
3%
3%
-
72%
-
-
-
6%
12%
-
10%
-
-
-
-
23%
-
8%
11%
8%
13%
5%
14%
7%
3%
8%
32%
31%
12%
4%
3%
3%
5%
2%
2%
1%
2%
3%
31%
32%
11%
4%
3%
3%
5%
1%
3%
1%
3%
3%
28%
34%
12%
4%
3%
3%
5%
2%
3%
1%
2%
3%
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.
• Our structured debt securities comprised $1,355 million of ABS and $2,269 million of MBS as at December 31, 2022.
Residential MBS and Commercial MBS make up respectively 45% and 55% 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.
25.5 Net pre-tax unrealized gain (loss) on AFS securities
Table 31 – 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
Dec. 31,
2022
Sept. 30,
2022
June 30,
2022
March 31,
2022
Dec. 31,
2021
(1,160)
(216)
(113)
(1,489)
(1,266)
(159)
(339)
(1,764)
(912)
(49)
(193)
(1,154)
(543)
109
473
39
30
171
421
622
Highlights
Unrealized loss position of $1,489 million as of December 31, 2022, primarily due to mark-to-market losses on fixed-income
securities, due to the increase in interest rates in all regions; as well as
• mark-to-market losses on equity securities, due to unfavourable equity markets in Q2-2022 and Q3-2022; and
•
realized gains on equity securities recognized in net income in H1-2022, which led to an offsetting decrease in our
unrealized gain position. See more details in Table 19 – Net gains(losses) excluding FVTPL bonds.
IFRS 9
Effective Q1-2023
•
IFRS 9 will result in classification changes, whereby certain equity and fixed income instruments
that were previously classified as AFS will now become FVTPL. Upon transition, approximately
$385 million after-tax of net unrealized losses will be reclassified from AOCI to Retained earnings
with respect to these instruments.
INTACT FINANCIAL CORPORATION 57
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
25.6 Aging of unrealized losses on AFS common shares
IFRS 9
Effective Q1-2023
•
Given that our common shares will now be classified as FVTPL, it will no longer be necessary to
impair them given that the change in their fair value will now be recorded through Net income. Though
this will result in increased volatility to Net income, it will only impact the timing of the recognition of
gains/losses, with no impact on BVPS or capital.
Table 32 – 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,
2022
Sept. 30,
2022
June 30,
2022
Mar. 31,
2022
Dec. 31,
2021
189
35
51
275
297
92
64
453
229
83
17
329
66
5
6
77
52
2
-
54
Q4-2022 vs. Q4-2021
2022 vs. 2021
• We recorded $37 million of impairment on AFS
common shares, compared to $4 million in Q4-2021,
mainly due to their prolonged unrealized loss
position.
• We recorded $83 million of impairment on AFS common shares,
compared to $85 million of impairment losses on AFS common
shares in 2021, mostly related to a venture investment.
• We recorded nil impairment on AFS debt securities, compared to
$7 million in 2021.
• Since AFS investments are measured at fair value on our balance sheet, impairment losses have no impact on our BVPS and
capital position.
58 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 26 - Claims liabilities and reinsurance
26.1 Claims liabilities
Under the current IFRS 4 standard, our claims liabilities are discounted using a rate that reflects the estimated market yield of the
underlying assets backing the claims liability. We also apply a risk margin to our claims reserves. 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 is not representative of our operating performance. See Section 15 –
Non-operating results for more details on the impact of MYA on underwriting.
IFRS 17
Effective Q1-2023
•
•
•
•
•
Upon transition to IFRS 17, we will continue to discount and apply a risk adjustment to our claims
liabilities.
Under IFRS 4, claims liabilities are discounted using a rate that reflects the estimated market yield of
the underlying assets backing the claims liability. Under IFRS 17, the discount rate is now based on
a reference portfolio of assets that reflects the characteristics and duration of the claims liabilities.
The risk adjustment methodology is fairly aligned to our current risk margin methodology.
The changes in both discount methodology and risk adjustment will generate a one-time benefit at
transition but are not expected to have a significant impact over time.
These changes will not impact our fundamental approach to reserving.
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
The catastrophe reinsurance program covers our global operations. Our 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.
Table 33 – Corporate reinsurance program for multi-risk events and catastrophes
As of January 1,
2022
2023
Canadian events (in million of CAD)
Retention1
Coverage limits2
US events (in million of CAD)
Retention1
Coverage limits2
UK events (in million of GBP)
Retention1
Coverage limits2
250
6,400
150
1,300
125
1,600
200
7,200
125
1,225
75
1,350
1 Excludes reinstatement premium, tax impacts and co-participations between the retention level and coverage limit.
2 Represents the ground up limit before co-participations and retention level.
January 1, 2023
•
For Canadian events, the coverage limit before co-participations is $6.4 billion for 2023, which is smaller than the $7.2 billion for
2022. The lower coverage limit reflects reductions in earthquake exposure in British Columbia.
• As an illustration of the capacity of our 2023 reinsurance program, as at January 1, 2023, the retained cost of a 1 in 500-year
earthquake event in Canada would represent around 5 points of combined ratio (3 points in 2022), pre-tax, based on latest
exposures. The retained cost includes our $250 million retention plus reinstatement premiums and co-participations. We have
recently undertaken initiatives to reduce our exposure to an earthquake event (including the wind-down of the CNS business),
and as such, we expect the retained cost to reduce to about 4 points of combined ratio progressively over the next three quarters.
•
For UK&I and US events, we have increased our coverage limit for 2023 to reflect changes in our exposures including inflationary
impacts.
• We have increased our catastrophe retentions in 2023 to reflect reinsurance market conditions.
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.
60 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 27 - Employee future benefit programs
We currently offer defined benefit (“DB”) pension plans, defined 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. Employees have the choice between three DB options and
one DC option, and this choice can be modified every five years. 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, we have DB pension plans, which were closed to new entrants in 2002 and subsequently closed to future accruals in
March 31, 2017. 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. We continuously manage the risks related to our net DB pension asset (liability) to
reduce volatility that stems from both the DB pension obligation and assets by considering and executing strategies such as:
•
•
•
•
opportunistic annuity purchases;
asset diversification;
asset-liability matching to hedge against interest rate, inflation and credit risks; and
longevity swaps
The DB pension plans are recognized as an asset, when plans are in a net surplus position, or as a liability, when plans are in a net
deficit position. The net DB pension position and buy-in annuity contracts by country are summarized below.
Table 34 – Selected pension indicators
As at
Fair value of plan assets
DB pension obligation
Other net surplus remeasurements²
Net DB pension asset (liability)
Pension asset mix
Debt securities
Buy-in annuity contracts
Common shares
Derivatives
Other 3
Accounting funding ratio (funded plans)
December 31, 2022
UK&I1
Canada
December 31, 2021
UK&I1
Canada
3,040
(2,898)
(8)
134
1,440
1,021
805
(9)
(217)
109%
9,480
(8,939)
(180)
361
9,541
43
37
(30)
(111)
106%
3,736
(3,739)
(24)
(27)
16,094
(14,830)
(435)
829
1,935
793
1,220
37
(249)
106%
17,567
46
1,020
1,801
(4,340)
109%
1 Based on the latest actuarial valuations, there is a continuation of current funding arrangements of approximately £75 million per year plus expenses
and regulatory levies for the UK DB pension plans.
² Includes a 35% authorized surplus payments charge related to UK DB pension plans as it does not fall within the meaning of IAS 12 and the impact
of the asset ceiling related to certain Canadian DB pension plans.
3 Includes cash and cash equivalents, securities sold under repurchase agreements, investment property and other.
INTACT FINANCIAL CORPORATION 61
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
The fair value of buy-in annuity contracts fluctuates based on changes in the associated DB obligation. As at December 31, 2022, the
fair value of buy-in annuity contracts purchased in 2021 was of $618 million ($793 million – December 31, 2021) and those purchased
in 2022 was of $403 million. In total, our buy-in annuity contracts represent over 90% of the retiree exposure and over a third of the
total pension obligation in Canada.
In the UK, significant steps have been taken over recent years to substantially de-risk the plans from return seeking assets such as
equities into bonds and other asset classes that produce a stable stream of cashflows that match the obligation. 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. Market conditions and funding levels are also monitored dynamically on
an ongoing basis to identify opportunities for further de-risking.
UK markets continued to be volatile during Q4-2022. The pension surplus position of the UK&I of $361 million as at December 31, 2022
decreased by $527 million compared to September 30, 2022. This was driven primarily by the significant tightening in long-dated AA
credit spreads, impacting the rate used to discount our pension obligation, with only a partial offset provided by the shorter-dated
corporate bonds held in the plans. AA spreads remain elevated relative to prior year, with the year-to-date deterioration in surplus being
driven largely by the significant increases in interest rates.
See Note 30 – Employee future benefits to the Consolidated financial statements and Section 33 – Enterprise Risk
Management for further details.
62 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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. We tend to keep higher levels of capital margin when we foresee growth or
actionable opportunities in the near term.
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.
INTACT FINANCIAL CORPORATION 63
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Regulatory capital
Our capital levels may vary over time depending on our evaluation of risks and their potential impact on capital. In addition, it is our
practice to complete our risk appetite requirement by maintaining funds within the holding companies but actual amounts may vary
from time to time.
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).
• 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.
Canada
•
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.
IFRS 17
Effective Q1-2023
•
•
•
In July 2022, OSFI issued the final MCT 2023 guidelines to adapt the MCT calculation for the new
accounting standards coming into effect January 1, 2023 (IFRS 17 - Insurance Contracts and IFRS 9 -
Financial Instruments).
Based on our assessment of regulatory capital, we expect our capital position in Canada to remain
broadly stable under IFRS 17. For the other jurisdictions in which we are regulated, the regulatory
capital calculations are independent of IFRS 17.
Overall, the new standards are not expected to change our overall capital framework and how we
manage capital.
64 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 by jurisdiction.
Table 35 – Estimated aggregated capital position
As at
Total capital margin
Canadian regulated entities
UK & International regulated entities
US regulated entities
Holding Companies
Consolidated total capital margin
Regulatory capital ratios
Canadian regulated entities
UK & International regulated entities2
US regulated entities
Adjusted debt-to-total capital3 (Table 60)
Total leverage ratio3,4 (Table 60)
Regulatory
capital ratios
CAL
December 31,
2022
September 30,
2022
December 31,
2021
MCT
SCR
RBC
168%1
120%
200%
1,005
725
560
89
2,379
197%
175%
388%
21.2%
30.3%
763
901
451
375
2,490
188%
188%
357%
22.5%
31.7%
908
1,025
638
320
2,891
206%
180%
448%
23.0%
33.2%
1 The average CAL for all regulated Canadian insurance entities is 168% MCT. The CAL varies by legal Canadian entity. The change in CAL reflects
the revision of RSA Canada’s internal target as the integration process matures.
2 Indicated CAL and coverage figures are for Royal & Sun Alliance Insurance Limited which includes all UK & International insurance subsidiaries.
3 See Section 36 – Non-GAAP and other financial measures for more details.
4 Including debt, preferred shares and hybrids.
Total capital margin highlights
Total capital margin stood at a strong $2.4 billion as at December 31, 2022, reflecting a solid capital position amidst a volatile
global environment.
•
•
Total capital margin slightly decreased over the quarter, as expected. This was driven by strong underwriting results and a
broadly positive impact of market related fluctuations, tempered by the repayment of the US senior notes and some downward
pressure in the UK&I capital position, as a result of hardening reinsurance markets and adverse weather.
Total capital margin has decreased over the year. Solid operating results combined with the proceeds from the sale of Codan
DK has made possible significant deleveraging, and drove a decrease of 1.8 points to the adjusted debt-to-total capital and
2.9 points to the total leverage ratio. Other contributing items included the unfavourable impact of market movements on capital,
the share buy back program and distribution investments, including the Highland acquisition.
Aggregate regulatory capital levels by jurisdiction are well above minimum regulatory targets.
INTACT FINANCIAL CORPORATION 65
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
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 and include an
interest payment deferral option, whereby payments can be delayed for a period of up to
five consecutive years.
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.
69%
Capital structure
December 31, 2022
Debt (excluding hybrid debt)
Preferred shares and hybrid debt
Equity
21%
10%
•
•
•
The weighted-average debt maturity is 12 years as at December 31, 2022 (11 years as at December 31, 2021). This excludes
commercial paper, which has no maturity, and hybrid debt, which are classified with preferred shares.
The weighted-average debt coupon is 2.89% (after-tax) as at December 31, 2022 (2.17% after-tax as at December 31, 2021).
This includes commercial paper and term loans.
The weighted-average preferred share coupon is 4.65% (after-tax) as at December 31, 2022 (4.50% after-tax as at December
31, 2021). This includes hybrid debt.
For acquisition purposes and other special transactions, 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. As at December 31,
2022, our adjusted debt-to-total capital ratio was at 21.2%, slightly above our targeted level.
66 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
2
2
0
2
-
1
Q
2
2
0
2
-
3
Q
$150 million
preferred
share
issuance
Redemption
of Tier 1
notes
$350 million
bank term
loan
Term Loan
Series 14
Unsecured
Medium-
Term Notes
(USD)
NCIB
program
Financing activities in 2022
• On March 15, 2022, we completed the issuance of 6,000,000 Class A Series 11 Preferred Shares (the
“Series 11 Preferred Shares”), at a price of $25 per share, for aggregate gross proceeds of $150 million.
•
The proceeds of this offering were used to partially fund the redemption of the RSA’s Tier 1 notes.
• On March 28, 2022, RSA’s Tier 1 notes were redeemed at their first call date for the principal amount of
SEK 2,500M and DKK 650M, for a total redemption amount of approximately $450 million.
•
The Tier 1 redemption was funded using the bank term loan of $350 million and the issuance of Series 11
Preferred Shares.
• On March 28, 2022, we entered into a 9-month bank term loan facility agreement of $350 million at a rate
of CDOR plus 25bps.
• On May 2, 2022, the bank term loan was repaid using the proceeds from the sale of Codan DK to Alm
Brand A/S Group.
• On July 29, 2022, we entered into a third USD term loan agreement for an amount of $241 million
(US$188 million). The proceeds were used for the Highland acquisition.
•
This term loan was refinanced with the Series 14 unsecured medium-term notes (see below).
• On September 22, 2022, we completed an offering of $674 million (US$500 million) of Series 14
unsecured medium-term notes in USD through a private placement in Canada and in the United States.
These notes bear interest at an annual rate of 5.459% and mature on September 22, 2032.
•
The net proceeds received have been used to reimburse the third USD term loan of $254 million
(US$188 million) on September 22, 2022, the first USD term loan of $107 million (US$80 million) on
September 29, 2022, as well as the 2012 US senior notes of $372 million (US$275 million) on November
9, 2022.
• On February 17, 2022, we commenced a NCIB to purchase for cancellation during the next twelve months
up to 5,282,458 common shares, representing approximately 3% of IFC issued and outstanding common
shares as of February 8, 2022.
From February 17, 2022 to December 31, 2022, a total of 824,990 shares were repurchased under the
NCIB program at an average price of $182 per share for a total consideration of approximately $150
million.
•
• Subsequent to year end, on February 7, 2023, the Board authorized the renewal of the NCIB for the
repurchase of up to 3% of the Company’s issued and outstanding common shares over the subsequent
12-month period, subject to TSX approval.
2
2
0
2
-
4
Q
Commercial
paper
program
$1.5 billion
credit
facility
• As of December 31, 2022, we had $135 million outstanding ($439 million as of December 31, 2021), with
•
weighted-average maturity of 37 days and weighted average annual rate of 4.42%.
This program represents an effective short-term funding vehicle. We expect to continue using
commercial paper to manage short-term liquidity needs.
• As at December 31, 2022, there was $2 million drawn under the credit facility (nil as at December 31,
•
2021).
The credit facility serves as a guarantee for the Commercial paper program. As at December 31, 2022,
an amount of $135 million is reserved on the credit facility for this program and as a result, cannot be
drawn.
Series 1
Preferred
shares
• On December 1, 2022, we communicated our intention not to redeem our Series 1 Preferred Shares and
proceed with the rate reset. As such, holders of Series 1 Preferred Shares could have elected to convert
their shares into Series 2 Preferred Shares on a one-for-one basis on December 31, 2022. However, given
that the minimum amount of 1,000,000 shares required to be tendered for conversion was not met, none
of the Series 1 Preferred Shares were converted to Series 2 Preferred Shares. The Series 1 Preferred
Shares now yield a 4.841% dividend rate.
See Note 20 – Debt outstanding and Note 21 – Common shares and preferred shares of Consolidated financial statements
for more details.
INTACT FINANCIAL CORPORATION 67
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Financing activity in 2022
The table below represents an overview of the financing activity in 2022 and their impact on the adjusted debt-to-total capital ratio.
Table 36 – Financing activity
Debt outstanding
(excluding hybrid debt)1, 2
Adjusted
total capital2
Adjusted debt-to-total
capital ratio2
Financing
As at December 31, 2021
Commercial paper
Credit facility
Tier 1 notes
Preferred shares
NCIB program
Term Loans
Issuance of third USD Term loan
Repayment of first USD Term loan
Repayment of second USD Term loan
Repayment of third USD Term loan
Series 14 Medium-Term Notes USD
2012 US Senior Notes redemption
Other movements
21,698
(304)
2
(510)
147
(150)
241
(107)
(615)
(254)
667
(372)
(236)
20,207
4,982
(304)
2
-
-
-
241
(107)
(615)
(254)
667
(372)
35
4,275
247
23.0%
(1.1)%
-%
0.5%
(0.2)%
0.2%
0.9%
(0.4)%
(2.3)%
(1.0)%
2.6%
(1.4)%
0.4%
21.2%
As at December 31, 2022
Reconciliation to the most comparable GAAP measures
Hybrid subordinated notes1
Debt outstanding1
Total capital3
1 Debt is presented at carrying value. See Note 20.1 – Summary of debt outstanding to the Consolidated financial statements
2 See Section 36 – Non-GAAP and other financial measures for more details.
3 Total capital represents the sum of Debt outstanding and Total equity, as reported under IFRS.
20,207
4,522
68 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
28.4 Common shareholder dividends
2023: our 18th 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.
•
The decision to increase our dividends by another 10% to $1.10 per quarter in 2023 reflects the strength of our financial position
and confidence in our ongoing operating earnings and capital generation This represents the 18th consecutive increase in dividend
since our initial public offering (IPO).
CAGR of 10% (2020-23), 9% (2018-23) and 10% (2013-23)
1.76
1.92
2.12
2.32
2.56
2.80
3.04
3.32
3.40
4.40
1
4.00
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1Annual dividend for 2023 is projected
28.5 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. Our objective is to maintain stable investment grade ratings at all times.
Table 37 – Ratings
Financial strength ratings
IFC’s principal Canadian P&C insurance subsidiaries
RSA Canadian entities
Intact Insurance Specialty Solutions (US regulated entities)
RSA Insurance Group UK&I
Senior unsecured debt ratings
IFC
Intact Insurance Specialty Solutions (US regulated entities)
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-
• On October 14, 2022, DBRS Morningstar changed its outlook trend on Intact Financial Corporation from stable to positive.
• On December 14, 2022, A.M. Best reaffirmed RSA Insurance Group UK&I’s financial strength rating of A with a stable outlook.
• On December 20, 2022, Fitch reaffirmed IFC’s financial strength rating of AA- with a stable outlook.
2022 Ratings highlights
INTACT FINANCIAL CORPORATION 69
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
28.6 Book value per share
Book value per share increase over time
CAGR of 14% (2019-22), 11% (2017-22) and 9% (2012-22)
82.34
80.33
33.03
33.94
37.75
39.83
42.72
48.00
48.73
53.97
58.79
5.00
2012
3.62
2013
5.67
6.38
4.88
5.60
5.74
6.16
2014
2015
2016
2017
2018
2019
2020
2021
2022
9.92
12.41
11.88
2022 Highlight: Our
BVPS decreased by 2%
year-over-year, as
strong earnings were
offset by significant
mark-to-market losses
on investments earlier in
the year.
BVPS
NOIPS
Table 38 – 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 securities1
Foreign exchange impact
Net actuarial gains (losses) on employee future benefits
Cash flow hedge impact
Net impact from common shares issued/ (repurchased)
Dividends on common shares
Other2
BVPS, end of period
Period-over-period increase
Q4-2022
78.90
3.34
(1.08)
2.26
2.29
0.74
(3.12)
-
(0.01)
(1.00)
0.27
80.33
2%
2022
82.34
11.88
1.58
13.46
(9.34)
(0.01)
(2.32)
(0.03)
(0.45)
(4.00)
0.68
80.33
(2)%
2021
58.79
12.41
(0.01)
12.40
0.62
0.02
1.67
-
12.13
(3.40)
0.11
82.34
40%
1 Reflects the realized gains and losses reclassified from AOCI to Net income.
2 Includes share-based payments.
Q4-2022 BVPS highlights
• Solid EPS contribution of $2.26 reflected a robust operating performance, offset in part by realized net investment losses caused
by recent volatility in capital markets.
• Gain on AFS securities of $2.29 per share, representing 3% of our BVPS, included the following positive impacts:
-
-
-
An increase of $0.84 from gains on fixed-income securities, caused by a decrease in bond yields, particularly in the UK;
and
An increase of $0.70 relating to our equity investments, driven by positive market returns
An increase of $0.74 from additional deferred tax assets recognized, relating to the unrealized loss position on our AFS
bond portfolio in the UK&I, which is expected to reverse over time (see Section 16 – Income taxes for more details).
•
Foreign exchange gain of $0.74 per share, due to the strengthening of the UK pound sterling of 6% in the quarter, offset in part
by a 2% weakening of the US dollar.
• Decrease of $3.12 per share relating to the OCI movement of our pension plans, mainly due to a significant tightening in
long-dated AA credit spreads in the UK (see Section 27 – Employee future benefits programs for more details).
70 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
28.7 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 39 – Cash flows
Q4-2022 Q4-2021 Change
2022
2021
Change
Net cash flows provided by operating activities
928
894
34
3,665
3,146
519
Cash flows generated from (deployed on):
Business combination, net of cash acquired1
Proceeds from the sale of businesses, net of cash
disposed1
Proceeds from issuance of debt, net of issuance costs2
Repayment of debt2
Borrowing (repayment) on the credit facility and
commercial paper2
Proceeds from issuance of common shares and preferred
shares, net of issuance costs
Repurchase of common shares for cancellation
Repurchase of common shares for share-based payments
Dividends on common shares and preferred shares
Dividends to non-controlling interests
Redemption of non-controlling interests
Proceeds from (purchases of) brokerages and other equity
investments, net
Purchases of intangibles and property and equipment, net
Payment of lease liabilities
Payment of contingent consideration related to a business
-
-
(1)
(372)
-
-
1
(73)
(239)
(11,076)
10,837
(2)
(299)
1,295
1,258
(1,700)
7,209
1,815
(1,429)
(5,914)
(557)
(271)
107
(33)
140
(302)
439
(741)
-
(1)
(5)
(191)
(7)
-
(35)
(119)
(27)
-
-
(5)
(213)
13
14
(23)
(106)
(27)
-
(1)
-
22
(20)
(14)
(12)
(13)
-
146
(150)
(112)
(762)
(24)
(450)
(235)
(411)
(111)
-
4,263
-
(81)
(679)
(27)
-
(102)
(327)
(97)
(4,117)
(150)
(31)
(83)
3
(450)
(133)
(84)
(14)
(15)
15
combination
-
-
-
Net cash inflows (outflows) before the following:
Proceeds from investment sales (purchases), net
277
(602)
442
(1,168)
(165)
566
1,868
(3,156)
3,039
(1,676)
(1,171)
(1,480)
Net increase (decrease) in cash and cash equivalents
(325)
(726)
401
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
1,310
25
1,010
3,014
(12)
(1,704)
37
(1,288)
2,276
22
1,363
(2,651)
917
(4)
1,359
26
2,276
(1,266)
1,010
2,276
(1,266)
1 See Note 5 – Business combinations and disposals to the Consolidated financial statements for details.
2 See Section 28.3 – Managing leverage for details.
3 Net of bank overdraft.
INTACT FINANCIAL CORPORATION 71
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
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.
Q4-2022 Cash flows highlights
We hold cash and cash equivalents at the parent holding company level, Intact Financial Corporation, and within our wholly
owned operating subsidiaries. As at December 31, 2022, Intact Financial Corporation (our parent holding company) had
$4 million of cash and cash equivalents ($126 million as at December 31, 2021).
The decrease of $122 million on the balance of cash and cash equivalents since December 31, 2021, was mainly driven by:
•
•
•
capital outflow of $1,163 million from investing, financing and treasury activities;
capital return of $852 million to our common shareholders (including dividends and NCIB program); and
corporate expenses of $197 million (including preferred shares dividends)
partially offset by;
•
•
proceeds of $1,183 million from the sale of Codan DK; and
capital inflow of $907 million from our wholly owned operating subsidiaries
28.8 Contractual obligations
Table 40 – Contractual obligations
As at December 31, 2022
Principal repayment on notes outstanding
Interest payments on notes outstanding
Claims liabilities1,2
Leases3
Investments4
Financial liabilities related to investments5
Pension obligations6
Other financial liabilities2
Other commitments4
Total contractual obligations
Payments due by period
Total Less than 1 year
1 – 5 years Thereafter
4,522
2,774
25,607
1,196
854
189
754
5,312
425
41,633
135
166
10,590
205
854
180
133
4,431
202
16,896
1,355
594
12,312
522
-
-
533
608
217
16,141
3,032
2,014
2,705
469
-
9
88
273
6
8,596
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 fixed payments, reduced by any incentives receivable, as well as operational costs and variable lease payments.
4 See Note 34 – Commitments and contingencies to the Consolidated financial statements for details.
5 See Note 7 – Financial liabilities related to investments to the Consolidated financial statements for details.
6 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.
72 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 29 - Foreign currency management
29.1 Foreign currency rates
We operate principally in the Canadian, UK and US P&C insurance markets. We are exposed to foreign currency impacts from
translating foreign currency denominated transactions to Canadian dollars.
Table 41 – Foreign currency rates
Dec. 31, 2022
As at
Dec. 31, 2021
Q4-2022 Q4-2021
Average rates for the periods
2021
2022
Foreign currency vs CAD
USD
GBP
EUR
DKK
1.354
1.637
1.449
0.195
1.265
1.710
1.439
0.193
1.357
1.594
1.386
0.186
1.261
1.699
1.440
0.194
1.302
1.607
1.370
0.184
1.254
1.724
1.483
0.197
The change in foreign currency rates presented above has impacted some of our key performance indicators as follows, in Canadian
dollars, for 2022:
• On DPW, it had an unfavourable impact of approximately $220 million.
• On underwriting income, it had an immaterial net impact.
• On NOIPS, it had an unfavourable impact of less than $0.10.
29.2 Currency hedging
Net investment hedges (previously book value hedges)
• 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.
Net exposure by currency
(as a % of common shareholders’ equity)
December 31, 2022
CAD
USD
3%
GBP
Euro
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.
18%
18%
61%
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 73
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
74 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 31 - Risk management structure
INTACT FINANCIAL CORPORATION 75
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
The Enterprise Risk Committee (the “ERC”) is an enterprise-wide executive committee with a mandate to assist the Board
and Senior Management with their responsibilities of managing and providing risk oversight on the operations of the
Company. The ERC was established to support the Chief Executive Officer (the “CEO”) and the Chief Risk Officer (the
“CRO”) in the matters of:
•
•
Formulating the risk strategy and setting and monitoring of the risk appetite and the key risk metrics, including
monitoring performance of the Group relative to the risk appetite, aiming for the right balance between risk,
return, and capital. Recommending risk appetite to the Risk Management Committee of the Board (“RMC”) and
the Board for approval.
Identification, management, and reporting to the RMC of the principal risks facing the Company, including
periodic review and evaluation of the top risks and emerging risks profiles. The principal risks include strategic
risk, insurance risk, financial risk, and operational risk.
• Overseeing actions to address material risks out of appetite and monitoring progress towards returning to within
appetite, including oversight of the key risk mitigation function of business continuity.
•
•
Risk governance, including the development of risk owned policies and frameworks, including the Enterprise
Risk Management Policy.
Promoting and reinforcing a culture of risk awareness throughout the Company.
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.
76 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 shareholders. 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
committees are structured in
accordance with sound
corporate governance
standards.
Directors are presented with
relevant information in all areas
of our operations to enable
them to effectively oversee our
management, business
objectives and risks. The Board
of Directors and the Audit
Committee periodically receive
reports on all important
litigation, whether in the
ordinary course of business
where such litigation may have
a material adverse effect, or
outside the ordinary course of
business.
Disclosure controls and
processes have been put in
place so that relevant
information is obtained and
communicated to senior
management and the Board of
Directors to ensure that we
meet our disclosure obligations,
while protecting the
confidentiality of information.
A decision-making process
through the Disclosure
Committee is also in place to
facilitate timely and accurate
public disclosure, including
compliance in accordance with
requirements of Canadian
Securities Administration
National Instrument 52-109.
Effective corporate governance
depends on sound corporate
compliance structures and
processes.
We have established an
enterprise-wide Compliance
Policy and framework including
procedures and policies
necessary to ensure adherence
to laws, regulations and related
obligations. Compliance
activities include identification,
mitigation and monitoring of
compliance/reputation risks, as
well as communication,
education, and activities to
promote a culture of compliance
and ethical business conduct.
To manage the risks associated
with compliance, regulatory,
legal and litigation issues, we
have specialized resources
reporting to the EVP& Chief
Legal Officer, that remain
independent of operations.
The EVP & Chief Legal Officer
reports to the Board of Directors
and its committees on such
matters, including with respect
to privacy and Ombudsman
complaints.
We also use third party legal
experts and take provisions
when deemed necessary or
appropriate.
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 77
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 the link between the Company’s strategies and our risk appetite and
to articulate how we manage risk to achieve our strategic objectives. As such, our overarching risk strategy, which is the ERM mandate,
is to oversee the Group’s risks and objectively challenge the Group’s risk management activities, while ensuring that appropriate actions
are taken to protect our clients, employees, shareholders, and other stakeholders. The following mission statement outlines how we
achieve our mandate:
Build a sustainable competitive advantage by fully integrating enterprise risk
management into our business activities and strategic planning
Prevent and mitigate risks related to various areas that could impede the
achievement of our business and strategic objectives
Protect IFC’s reputation and safeguard the company from financial losses
33.2 Guiding Principles
Our business strategies and capital management decisions are tied to the risks the company is prepared to accept, manage, mitigate, or
avoid. The ERM function reports to the Board on capital level sufficiency to support planned business operations in line with our risk
appetite. Based on the alignment and governance provided by the development of our own expertise in risk management, and by the best
practices and governance models we establish the enterprise risk management framework to support the ongoing assessment of risk and
develop risk management policies and processes to manage and minimize systemic risks in the organization.
As such, to facilitate our ERM objectives, the following principles apply across the organization:
Transparency and communication of our risks and incidents is essential
• Risk is an essential part of the decision-making process
•
• Approach to risk management is systematic, structured, and timely
The risk management process facilitates continuous improvement
•
78 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 79
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
Our risks are separated into four main categories: Strategic Risk, Insurance Risk, Financial Risk and Operational Risk.
80 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 Committee identifies the top risks facing the Company. 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
Risk we are facing
Insurance risk
The occurrence of a major earthquake may produce significant damage in large, heavily populated areas.
Potential impact
How we manage this 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
further
reinsurance capacity upon
renewals. In addition, we could be subject to
increased assessments from the P&C Insurance
Compensation Corporation (PACICC) leading to
further costs if other insurers are unable to meet
their contractual obligations with their clients.
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.
We also purchase a prudent amount of catastrophe reinsurance beyond regulatory
requirements to transfer a significant portion of this risk. The modelled 1-in-500 year probable
maximum loss (PML) for an earthquake event in Western Canada, net of reinsurance and taxes,
has an impact of -5.3% of BVPS as at January 1, 2023.
During 2022, we announced the wind-down of CNS business. In addition, we implemented
further product measures in both personal and commercial lines to reduce exposure to a
Western Canada earthquake. These measures will result in a significant reduction in gross
earthquake exposure from the end of Q3 2022 until the end of Q3 2023 (we estimate a reduction
of approximately 1% over that time frame).
INTACT FINANCIAL CORPORATION 81
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Climate change risk
Risk we are facing
Insurance risk
As a property and casualty insurer, a core element of our business is to assume physical climate risk from our customers. Changes in the climate
may have a material impact on the Company’s risk profile in several ways.
Physical risk has been affecting our property and auto 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
The most significant climate change risks we face include physical risk
related to our insurance products and transition risk related to our
investments.
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.
Two examples of severe storms in 2022 include the Derecho (windstorm)
in Quebec and Ontario in May and Hurricane Fiona in the Atlantic region
in September. These types of events may become more frequent and/or
severe as a result of climate change.
Operations: Could disrupt our operations, should severe weather events
affect our premises or the premises of any outsourced business functions.
Transition risk
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.
How we manage this risk
Physical risk
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, and given that it is subject to
uncertainty, 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. Changes in the cost and/or availability of
reinsurance can significantly impact our ability to manage the risk
associated with physical climate change.
Transition risk
Investments: Intact Investment Management (IIM) 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. In 2022, IIM released its
position on investing in Oil & Gas companies. We will divest from
companies that do not have a satisfactory plan which helps mitigate
transition risk in our investment portfolio.
82 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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. In addition, natural disasters could originate from outer space including
solar storms and asteroid strikes.
• 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
financial results and could
materially reduce our profitability or harm our
financial condition.
in our
•
•
•
Underwriting segmentation through the use of detailed maps (flood, hail, etc.).
Country diversification through uncorrelated catastrophe events helps mitigate our
overall exposure. We monitor our peak catastrophe exposures in all our main markets.
Location and exposure data is monitored and provides effective control over geographic
risk accumulation.
Non-natural catastrophe risk
We offer cyber risk insurance to our commercial
customers. We may be adversely affected by
that simultaneously
large-scale cyber-attacks
compromise the systems of many of our insureds.
In addition, we have exposure to terrorism risk
through our specialty business. Terrorism can
take many forms and both our property and
workers’ compensation policies may be affected
by an event.
Natural catastrophe risk
Some of the risk mitigations referred to in the section above on climate change risk also
mitigate the catastrophe risk.
With the assistance of third-party models, we model a range of natural catastrophes across
all the main jurisdictions in which we operate. The modelled aggregate 1-in-100 year probable
maximum loss (PML), net of reinsurance and taxes has an incremental impact of -6.1% of
BVPS.
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. We leverage 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 83
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
In the UK market, 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).
84 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 and 2022, and central banks responded by rapidly increasing interest rates to
contain inflation. Consequently, we experienced a dramatic rise in interest rates and a decline in equity markets during 2022. See Section 25.2 –
Capital markets update.
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.
Our preferred share portfolio depreciates in value
as a result of negative developments in interest
rates, credit or liquidity markets.
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. In 2022, our investment portfolio remains
defensive with a higher allocation to cash than usual and lower equity exposure than 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.
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.
Reference to our Consolidated financial statements
Our fixed income portfolio may experience
defaults resulting in impairments and lower
income prospectively.
Market risk/Interest 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 85
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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, including:
•
•
•
•
•
•
•
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 effects of the COVID-19 pandemic continues to bring an additional level of uncertainty to these factors when estimating reserves.
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 overall 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 review 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.
During 2022, we’ve been closely monitoring the impact of
inflation on our claims and making appropriate adjustments to
our reserves, particularly in short-tail lines of business, to help
mitigate the risk of adverse development.
86 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
Pricing inadequacy may lead to material
declines in underwriting results and/or
deficient reserves. In addition, the increase
in frequency and/or severity of claims could
also create pressure on profitability. The
following factors could deviate claims from
expected levels:
•
•
•
• misestimation of replacement costs;
•
•
deterioration of the economy;
unexpected cost inflation;
inadequate segmentation;
underwriting
unclear wording;
deviation
guidelines.
from
COVID-19 brings uncertainty related
to
potential exposure to the level of direct
losses in 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. On Side 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 do not 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 closely monitor the impact of increased inflation in our claims data and promptly increase rates
accordingly.
INTACT FINANCIAL CORPORATION 87
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
•
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.
88 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 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 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 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.
the risk of breaching
the regulatory capital
To reduce
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.
We have implemented a robust regulatory compliance process to
ensure close tracking of, and adherence to, regulations and laws
across the jurisdictions in which we operate.
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 89
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 continued to accelerate in recent years. Geo-political conflict could exacerbate this risk further.
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 real-time access to information on
their insurance policies, provide quotes for new
insurance products or enable customers to report
claims electronically.
These events and attacks may lead to wide
ranging consequences including:
•
financial loss, which also includes lost
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, and
again in 2022 for RSA, 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. The Enterprise Risk Committee oversees the establishment of our cyber
security strategy and monitors the progress of our mitigation action plans. During 2022, cyber
security awareness was continually provided to employees in addition to regular phishing tests
to strengthen our cyber defense.
We conducted a cyber security benchmarking exercise to compare our security posture with
similar organizations and use the results to determine areas of focus to further enhance our
cyber security defenses.
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.
90 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 added 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.
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.
As part of the IFRS 17 implementation, we have been undertaking the modernization of our
financial reporting systems.
In 2021 we launched strategic projects to modernize and replace RSA’s legacy systems.
Remediation of the Legacy IT environment is ongoing.
Inability to contain fraud and abuse
Risk we are facing
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
by
significantly
regulatory regimes that limit our
ability
to detect and defend
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.
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. We have multiple ways of detecting potential fraud either through automated reports,
adjuster referrals, and external alerts. 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.
INTACT FINANCIAL CORPORATION 91
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
insurance and
negative publicity around
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.
92 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 are 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. We revisited this risk in 2022 and developed indicators to assess social
unrest risk in our main jurisdictions (Canada, U.S. and the U.K).
Third party risk
Risk we are facing
In 2022, we conducted a table-top exercise to test the preparedness of our operations in the
event of social unrest.
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
reputational
damages. Depending on the length of the failure,
significant opportunity costs could also be incurred.
to substantial
lead
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.
Our cyber insurance could also mitigate a portion of the financial impact in the event of a third-
party incident affecting our operations.
INTACT FINANCIAL CORPORATION 93
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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’s large defined benefit pension plans. 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 defined benefit pension plans in Canada are adequately funded and smaller in size. 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.
In both 2021 and 2022, we de-risked the Canadian pension fund exposure by purchasing annuities
to reduce longevity and investment risk.
See Section 27 – Employee future benefit programs
See Note 30 in our Consolidated financial statements
33.7 Other risk factors that may affect future results
Legal risk
We are a defendant in a number of claims relating to our insurance and other 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, brokers, employees 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 or regulatory 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.
94 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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.
Labour shortages are present, 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.
INTACT FINANCIAL CORPORATION 95
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
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 28.5 –
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.
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.
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 2022, 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. Our risk profile
remains balance between insurance and financial risk with operational risk accounting for a small portion of overall internal capital
requirements. Our risk profile remains well diversified across business lines and geographies.
96 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
33.9 Off-balance sheet arrangements
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 $3,616 million as
at December 31, 2022 ($3,036 million as at December 31, 2021).
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
accepted collateral consists of government securities representing approximately 105% of the fair value of the securities loaned as at
December 31, 2022 (104% as at December 31, 2021).
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 $1,660 million as at
December 31, 2022 ($1,859 million as at December 31, 2021).
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.
INTACT FINANCIAL CORPORATION 97
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 34 - 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.
IFRS 9
Effective Q1-2023
•
•
IFRS 9 will result in classification changes, whereby certain equity and fixed income instruments
that were previously classified as AFS will now become FVTPL. Given that these instruments will
now be classified as FVTPL, the unrealized change in their fair value will be recorded through Net
income, rather than through OCI. Though the reclass of these equity instruments will result in
increased volatility to Net income, it will only impact the timing of the recognition of gains/losses,
with no impact on BVPS or capital
The table below reflects the expected impact under IFRS 9.
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)1
Interest rate risk (100 basis point increase)
Debt securities3,4
Net claims liabilities7
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:
Net
income
OCI
BVPS
Net
income
OCI BVPS
2022
2021
(166)
(15)
(36)
(368)
360
-
(87)
(38)
(22)
(386)
-
(75)
(1.44)
(0.30)
(0.33)
(4.30)
2.05
(0.43)
27
19
(446)
(88)
(2.38)
(0.39)
(51)
(40)
(0.52)
(237)
378
-
(445)
-
11
(3.87)
2.15
0.06
USD
GBP
(14)
6
(296)
(384)
(1.77)
(2.16)
10
8
(305)
(411)
(1.68)
(2.29)
1 Including the impact of common shares (net of any equity hedges) or investment property related to the defined benefit pension plan, recorded in OCI.
2 Including the impact on related embedded derivatives.
3 Excludes the impact of credit spreads.
4 Excludes the impact of debt securities related to the defined benefit pension plan.
5 Interest rate sensitivity is based on the fixed-income portfolio, which comprises approximately 49% of government-related securities and 51% of
corporate-related securities.
6 After giving effect to forward-exchange contracts
7 Not reflecting the impact under IFRS 17
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.
.
98 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
ADDITIONAL INFORMATION
Section 35 - Financial KPIs and definitions
35.1 Our financial KPIs
Our most relevant key performance indicators are outlined in the table below. See Section 36 – Non-GAAP and other financial
measures for the definition and reconciliation to the most comparable GAAP measures.
2022
2021
2020
2019
2018
Growth
Operating DPW growth
Growth in constant currency
21.8%
23.1%
43.6%
45.0%
9.1%
8.7%
9.5%
9.1%
15.6%
15.4%
Underwriting
performance
Claims ratio
Expense ratio
60.3%
55.9%
57.8%
66.0%
65.3%
31.3%
32.9%
31.3%
29.4%
29.8%
Combined ratio
91.6%
88.8%
89.1%
95.4%
95.1%
Underwriting income
1,626
1,787
1,227
Consolidated
performance
Operating net investment income
Distribution income
NOI to common shareholders
NOIPS (in dollars)
OROE
AROE
ROE
EPS (in dollars)
AEPS (in dollars)
BVPS (in dollars)
MCT (Canada)
Financial
strength
SCR (UK&I)
RBC (US)
Total capital margin
927
437
2,086
11.88
14.3%
19.5%
16.5%
13.46
15.89
80.33
197%
175%
388%
2,379
706
362
2,017
12.41
17.8%
21.0%
17.0%
12.40
15.32
82.34
206%
180%
448%
2,891
577
275
1,419
9.92
18.4%
15.0%
12.8%
7.20
8.48
58.79
224%
n/a
469%
2,729
465
576
209
860
6.16
12.5%
11.4%
10.0%
5.08
5.75
53.97
198%
n/a
457%
1,222
474
541
175
799
5.74
12.1%
11.8%
9.9%
4.79
5.70
48.73
201%
n/a
377%
1,333
Adjusted debt-to-total capital ratio
21.2%
23.0%
24.1%
21.3%
22.0%
INTACT FINANCIAL CORPORATION 99
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 36 - 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 36.1 to Section 36.3), our underwriting performance (see Section 36.4
and Section 36.5) and our financial strength (see Section 36.6).
36.1 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, operating 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 22.1 – 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
WANSO1
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 43 – 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 44 –
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 36.5 – 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 Operating net investment income – calculated as Investment income less Investment expenses, as reported under
IFRS. See Table 17 – Operating 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, MGAs and other supply chain related
businesses. 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, 2022
(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 income (expense) is calculated using
components of Other income and Other expenses under IFRS.
See Table 45 – 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 15.1 – 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 15
– Non-operating results for details.
▪ Acquisition costs include professional fees and stamp duties related to the closing of an acquisition.
▪
Integration costs include 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 non-recurring reorganization costs not related to an acquisition and
expenses related to the implementation of significant new accounting standards.
o Gain on acquisition/ sale of business (gain on bargain purchase/ gain on sale of businesses), as reported under IFRS,
represents the difference between the purchase price paid (or the selling price received) and the fair value of the
identifiable net assets acquired (or the identifiable net assets sold) 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 combinations and
disposals 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 (effective in Q4-2017), the Healthcare business (effective July 1, 2019), Public Entities (effective
in Q1-2022), BC auto exit (effective in Q4-2020), CNS operations (wind-down since Q3-2021), legacy exits of the UK&I
portfolio as well as the operating results of the Middle East (sold in 2022). 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
2022
2,424
(311)
57
(24)
2,146
(60)
2,086
175.6
11.88
2021
2,067
70
(67)
-
2,070
(53)
2,017
162.4
12.41
2022
2,942
36
(311)
2021
2,568
30
70
2,667
2,668
(501)
(20)
(577)
(21)
871
4
(17)
858
(170)
(9)
679
2,146
2,070
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Table 43 – 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 18)
Remove: Non-operating tax expense (benefit)1
Remove: Non-operating component of NCI
NOI (Table 44)
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
Q4-2022 Q4-2021
412
236
(47)
-
601
(16)
585
175.3
3.34
2,086
14,567
14.3%
692
(17)
4
-
679
(13)
666
176.1
3.78
2,017
11,357
17.8%
1 See Table 48 – Acquisition-related gains (losses) and other non-operating gains (losses) for more details.
Table 44 – Reconciliation of PTOI to Income before income taxes, as reported under IFRS
Q4-2022 Q4-2021
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 18)
PTOI
Add: operating income tax expense
Netted with: net income (loss) attributable to NCI
NOI (Table 45)
475
6
236
717
(109)
(7)
601
102 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Table 45 – Reconciliation of Distribution income, Total finance costs, Other operating income (expense), Total income taxes and Underwriting income
with the Consolidated financial statements
As presented in the Financial
statements
Distribution
income
For the quarter ended December
31, 2022
MD&A captions
Pre-tax
Total
finance
costs
Other
operating
income
(expense)1
Operating
net
investment
income
Total
income
taxes
Non-
operating
losses
Underwriting
income
Total F/S
caption
Underwriting income1 (Table 55)
Investment income
Investment expenses
Other revenues
Net gains (losses)
Gain on sale of business
Share of profits from investments
in associates and joint ventures
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, 2021
Underwriting income1 (Table 55)
Investment income
Investment expenses
Other revenues
Net gains (losses)
Gain on the RSA acquisition
Share of profits from investments
in associates and joint ventures
Finance costs
Acquisition, integration and
restructuring costs
Other expenses
Income tax benefit (expense)
Total, as reported in MD&A
-
-
-
149
-
-
35
-
-
(91)
-
93
-
-
-
98
-
-
27
-
-
(48)
-
77
-
-
-
-
-
-
(5)
(50)
-
-
-
(55)
-
-
-
-
-
-
(1)
(42)
-
-
-
(43)
-
-
-
-
-
-
-
-
-
(27)
-
(27)
-
-
-
10
-
-
-
-
-
(6)
-
4
-
289
(10)
-
-
-
-
-
-
-
-
279
-
231
(11)
-
-
-
-
-
-
-
-
220
-
-
-
-
-
-
(6)
-
-
-
(56)
(62)
-
-
-
-
-
-
(4)
-
-
-
(170)
(174)
(57)
-
-
-
(27)
(2)
(6)
-
(84)
(60)
-
(236)
21
-
-
-
194
-
(6)
-
(133)
(59)
-
17
370
289
(10)
149
(27)
(2)
18
(50)
(84)
(178)
(56)
621
231
(11)
108
194
-
16
(42)
(133)
(113)
(170)
427
-
-
-
-
-
-
-
-
-
-
427
600
-
-
-
-
-
-
-
-
-
-
600
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, 2022
(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
As presented in the Financial
statements
Distribution
income
For the year ended December 31,
2022
MD&A captions
Pre-tax
Total
finance
costs
Other
operating
income
(expense)1
Operating
net
investment
income
Total
income
taxes
Non-
operating
losses
Underwriting
income
Total F/S
caption
Underwriting income1 (Table 55)
Investment income
Investment expenses
Other revenues
Net gains (losses)
Gain on sale of business
Share of profits from investments
in associates and joint ventures
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)
Investment income
Investment expenses
Other revenues
Net gains (losses)
Gain on the RSA acquisition
Share of profits from investments
in associates and joint ventures
Finance costs
Acquisition, integration and
restructuring costs
Other expenses
Income tax benefit (expense)
-
-
-
537
-
-
169
-
-
(269)
-
437
-
-
-
389
-
-
146
-
-
-
-
-
-
(12)
(177)
-
-
-
(189)
-
-
-
-
-
-
(9)
-
-
(153)
-
(173)
-
-
-
Total, as reported in MD&A
362
(162)
-
-
-
8
-
-
-
-
-
(142)
-
(134)
-
-
-
32
-
-
-
-
-
(57)
-
(25)
-
962
(35)
-
-
-
-
-
-
-
-
927
-
740
(34)
-
-
-
-
-
-
-
-
706
-
-
-
-
-
-
(36)
-
-
-
(522)
(558)
-
-
-
-
-
-
(30)
-
-
-
(480)
(510)
922
4
-
-
(429)
421
(18)
-
(353)
(236)
-
311
109
-
-
-
249
204
(20)
-
(429)
(183)
-
(70)
1,626
-
-
-
-
-
-
-
-
-
-
1,626
1,787
-
-
-
-
-
-
-
-
-
-
1,787
2,548
966
(35)
545
(429)
421
103
(177)
(353)
(647)
(522)
1,896
740
(34)
421
249
204
87
(153)
(429)
(413)
(480)
1 Comprised of the following captions in the Consolidated statements of income: Net earned premiums, Other underwriting revenues, Net claims incurred
and Underwriting expenses.
104 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
36.2 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 22.2 – 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 36.6)
• Adjusted net income* represents the Net income attributable to shareholders (most directly comparable GAAP measure),
excluding the after-tax impact of Acquisition-related items. Adjusted net income 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
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
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
Q4-2022
Q4-2021
412
49
46
-
1
508
(16)
492
175.3
2.82
2,789
14,289
19.5%
692
48
93
25
(13)
845
(13)
832
176.1
4.72
2,486
11,826
21.0%
2022
2,424
193
228
-
4
2,849
(60)
2,789
175.6
15.89
2021
2,067
151
297
23
1
2,539
(53)
2,486
162.4
15.32
INTACT FINANCIAL CORPORATION 105
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 36.1 –
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)
Q4-2022
Q4-2021
2022
2021
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
Acquisition-related gains (losses)
Other net gains (losses)
Positive (negative) impact of MYA on underwriting
Non-operating pension expense
Gain on acquisition / sale of business
Income (loss) from exited lines
Restructuring and other non-operating costs
Other non-operating gains (losses)
(66)
(62)
-
-
(128)
(27)
7
(14)
(2)
(50)
(22)
(108)
(49)
(46)
-
(1)
(96)
(30)
3
(10)
(2)
(40)
(14)
(93)
Non-operating gains (losses)
(236)
(189)
(63)
(117)
(34)
-
(48)
(93)
(25)
13
(254)
(295)
(193)
(228)
(199)
(375)
(151)
(297)
-
-
-
(4)
(31)
-
(23)
(1)
(214)
(153)
(549)
(425)
(605)
(472)
228
72
(16)
-
(35)
(18)
231
17
164
55
(12)
-
(28)
(13)
166
13
(429)
1,127
(56)
421
(145)
(58)
860
311
(394)
861
(35)
409
(118)
(44)
679
254
280
226
(64)
204
(53)
(58)
535
(70)
232
169
(47)
204
(43)
(46)
469
(3)
106 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
36.3 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 36.6)
• 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
Table 50 – Reconciliation of AEPS and NOIPS to EPS, as reported under IFRS
2022
2,424
(60)
2,364
175.6
13.46
2021
2,067
(53)
2,014
162.4
12.40
Q4-2022
Q4-2021
412
(16)
396
175.3
2.26
2,364
14,289
16.5%
692
(13)
679
176.1
3.85
2,014
11,826
17.0%
Q4-2022
Q4-2021
2022
2021
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)
Add back: non-operating component
of NCI
NOI attributable to common
shareholders (NOIPS)
396
96
492
93
-
2.26
0.56
679
153
3.85
2,364
13.46
2,014
12.40
0.87
425
2.43
472
2.92
2.82
832
4.72
2,789
15.89
2,486
15.32
0.52
(166)
(0.94)
(679)
(3.53)
(469)
(2.91)
-
-
-
(24)
(0.48)
-
-
585
3.34
666
3.78
2,086
11.88
2,017
12.41
INTACT FINANCIAL CORPORATION 107
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 36.1)
•
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 prorate 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
Q4-2022 Q4-2021
475
6
481
(62)
871
4
875
(174)
12.9%
20.1%
717
(109)
858
(170)
15.2%
19.8%
2022
2,942
36
2,978
(558)
18.7%
2,667
(501)
18.8%
2021
2,568
30
2,598
(510)
19.6%
2,668
(577)
21.6%
108 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
36.4 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 Operating DPW (as defined below)
calculated by applying the exchange rate in effect for the current year to the Operating DPW of the previous year.
• 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 Operating 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
Q4-2022
Q4-2021
2022
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)
5,528
(402)
(5)
4
5,125
2%
3%
5,318
(260)
(70)
29
22,655
(1,296)
(351)
45
2021
17,994
(605)
(161)
55
5,017
21,053
17,283
75%
75%
22%
23%
44%
45%
INTACT FINANCIAL CORPORATION 109
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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
Q4-2022
Q4-2021
2022
2021
4,834
5
4
4,843
4,828
(63)
2
20,069
(285)
45
4,767
19,829
16,672
(156)
7
16,523
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
Q4-2022
Q4-2021
2022
2021
5,054
(50)
5,004
1%
5,003
(72)
19,792
(408)
16,238
(195)
4,931
19,384
16,043
71%
21%
43%
110 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
36.5 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 36.1 – 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 36.4)
Operating NEP* (Section 36.4)
Underlying current
year loss ratio
CAT loss ratio
Operating net claims excluding current
year CAT losses and PYD1 (Section 36.5)
Operating NEP* before the impact of
reinstatement premiums (Section 36.4)
Net current year CAT losses1 plus net
reinstatement premiums (Section 36.5)
Operating NEP* before the impact of
reinstatement premiums (Section 36.4)
Commissions ratio
Commissions1 (Section 36.5)
Operating NEP* (Section 36.4)
General expenses
ratio
General expenses1 (Section 36.5)
Operating NEP* (Section 36.4)
PYD ratio
PYD1 (Section 36.5)
Operating NEP* (Section 36.4)
Premium taxes
ratio
Premium taxes1 (Section 36.5)
Operating NEP* (Section 36.4)
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
INTACT FINANCIAL CORPORATION 111
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
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.
o 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. Our CAT threshold is as follows; P&C Canada: $10 million, P&C
UK&I: £7.5 million, P&C US: US$5 million and IFC aggregate threshold: $15 million (combined impact across all
segments of $15 million or more, effective January 1, 2023).
▪ 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.
112 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 18)
Remove: non-operating pension expense
Remove: underwriting loss (income) from exited lines (Table 20)
Underwriting income (loss), as reported in the MD&A
Operating NEP (Table 54)
Operating combined ratio
Q4-2022
Q4-2021
2022
5,054
83
(3,123)
(1,644)
370
(7)
14
50
427
5,004
91.5%
5,003
79
(2,796)
(1,665)
621
(72)
16
35
600
4,931
19,792
312
(11,022)
(6,534)
2,548
(1,127)
56
149
1,626
19,384
87.8%
91.6%
Table 56 – Reconciliation of Operating net claims to Net claims incurred, as reported under IFRS
Q4-2022
Q4-2021
2022
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 14)
Remove: favourable (unfavourable) PYD (Table 13)
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 ratio1
CAT loss ratio (including reinstatement premiums) 1 (Table 14)
(Favourable) unfavourable PYD ratio2 (Table 13)
Claims ratio2
3,123
7
(5)
(80)
(12)
3,033
(167)
188
3,054
5,004
11
5,015
60.9%
3.6%
(3.8)%
60.7%
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 Calculated using Operating NEP before reinstatement premiums.
2 Calculated using Operating NEP.
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
Q4-2022
Q4-2021
1,644
(71)
(9)
(20)
1,544
753
650
141
5,004
15.0%
13.0%
2.8%
30.8%
1,665
(73)
(10)
(24)
1,558
829
591
138
4,931
16.8%
12.0%
2.8%
31.6%
11,022
1,127
(21)
(387)
(43)
11,698
(826)
733
11,605
19,384
18
19,402
59.8%
4.3%
(3.8)%
60.3%
2022
6,534
(269)
(35)
(170)
6,060
3,109
2,410
541
19,384
16.1%
12.4%
2.8%
31.3%
2021
16,238
236
(8,967)
(5,611)
1,896
(226)
64
53
1,787
16,043
88.8%
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%
INTACT FINANCIAL CORPORATION 113
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
36.6 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
BVPS
Common shareholders’ equity (excluding AOCI)
Number of common shares outstanding at the
same date
(excluding AOCI)
as at the end of a
specific period
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)
2022
2021
15,400
(1,322)
14,078
1,085
15,163
15,674
(1,175)
14,499
(529)
13,970
175.257
176.082
80.33
86.52
82.34
79.34
114 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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)
2022
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
14,078
-
14,078
14,499
14,289
-
14,289
15,163
-
15,163
13,970
14,567
-
14,567
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
INTACT FINANCIAL CORPORATION 115
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(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 20.1)
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
2022
4,522
(247)
4,275
4,522
15,400
-
285
20,207
4,275
20,207
21.2%
4,522
1,322
-
285
6,129
20,207
30.3%
21.2%
9.1%
Sept. 30
2022
4,796
(247)
4,549
4,796
15,150
-
285
20,231
4,549
20,231
22.5%
4,796
1,322
-
285
6,403
20,231
31.7%
22.5%
9.2%
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%
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.
116 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 37 - Accounting and disclosure matters
37.1 Transition to IFRS 17 – Insurance contracts and IFRS 9 – Financial instruments
On January 1, 2023, IFRS 17 – Insurance Contracts (“IFRS 17”) and IFRS 9 – Financial instruments (“IFRS 9”) came into effect. Refer
to Note 36.1 – Insurance contracts and financial instruments to the Consolidated financial statements for details and for the
expected impact to our financial statements.
The highlights presented below are intended to be helpful in advance of the implementation of these two standards,
based on our ongoing current assessment of their impact, which is subject to change.
Reminder: New standards at a glance
• P&C insurance companies are expected to be less impacted by IFRS 17 than Life Insurance companies, given that
this new standard is more closely aligned to the current standard (IFRS 4) for short-tail insurance contracts eligible for the
simplified approach.
• Overall, these standards have no impact on our economics and strategy, and our two financial objectives remain
unchanged (to grow NOIPS by 10% yearly over time, and to exceed the industry ROE by 5 points).
•
These new standards bring limited changes to our overall MD&A, as they do not impact how we manage and measure
our performance. However, significant changes to Financial Statement presentation and disclosure are expected.
• No significant changes to NOIPS are expected over time, though we expect an impact from changes in recognition
patterns and methodologies. These are largely timing differences, with their impact depending on the change in premium
volume year-over-year (for deferred acquisition costs), future profitability (onerous contracts) and interest rates
(discounting).
• Our investments will continue to be measured at fair value, though certain equity investments will now be marked-to-
market through Net income as opposed to through OCI. This could bring more volatility to non-operating results and
EPS but will not impact NOIPS, BVPS or regulatory capital.
Key Highlights (IFRS 17 & IFRS 9)
Timing,
comparatives &
transition
impact
o
o
IFRS 17 will be effective January 1, 2023, with IFRS 9 implemented simultaneously as insurers were offered an
exemption to delay the adoption of IFRS 9 to align with IFRS 17.
Prior year comparatives (2022 quarterly results) will be fully restated for IFRS 17, with the transition impact
recorded in the January 1, 2022 opening balance sheet:
o
Equity attributable to shareholders will increase by approximately $420 million (after-tax) mainly due to the
deferral of additional indirect costs which were previously expensed as incurred.
o
Comparatives will not be restated for IFRS 9, with the transition impact being reflected in the January 1, 2023
opening balance sheet:
o
o
The impact to BVPS will not be significant, with an immaterial impact from the new expected credit losses
provision driven by the high quality of our investment portfolio.
In addition, we will reclassify approximately $385 million (after-tax) of net unrealized losses from AOCI to
Retained earnings, with no overall impact to BVPS
INTACT FINANCIAL CORPORATION 117
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Impact to
operating
income
Impact to
non-operating
results
The principal changes expected are outlined below, based on our preliminary assessment:
Measurement changes
o
IFC’s insurance contracts are predominately short tail which allows for a simplified accounting (the premium allocation
approach or “PAA”). Given that this is generally aligned to current accounting practices, we expect limited impact on
operating income. The more complex general measurement model (“GMM”) will apply only to the claims acquired in the
RSA Acquisition and a limited number of reinsurance contracts.
o
Losses on onerous (unprofitable) contracts must be recorded in earnings as soon as the insurance contract is issued.
This change in timing is expected to have limited impact on an ongoing basis given that our groups of contracts are
generally expected to be profitable.
o We will continue to discount and apply a risk adjustment to our claims liabilities. The changes in methodology are not
expected to have a significant impact over time.
Presentation changes
o
Expected to positively impact overall underwriting income and operating combined ratio:
o
o
Main change is the unwinding of the claims discount, which will be presented outside of net claims incurred but
will remain in operating income. This change in presentation will not impact the underlying fundamentals of
how we manage our lines of business.
Our underwriting ratios will be based on a higher denominator which will include the current operating NEP plus
the addition of other insurance-related revenues (which are currently netted against underwriting expenses). This
will not impact underwriting income.
o We expect other presentation changes – within the various components of operating income such as underwriting
and distribution income, and/or between expense and claims ratio.
In aggregate, changes are not expected to have a significant impact on operating income over time.
The principal changes expected are outlined below, based on our preliminary assessment:
o
IFRS 9 will result in classification changes, with more equity investments now classified as FVTPL. The mark-to-market
on these equity investments will now be recognized in Net income as opposed to through OCI. Though this will result in
increased volatility to Net income, it will only impact the timing of the recognition of gains/losses, with no impact on
BVPS or total equity.
o Our investment strategy is designed to generate total return outperformance over time, and while it may bring short-term
volatility, it is expected to remain within our risk appetite.
o The MYA on our claims liabilities will continue to be presented in non-operating results, along with the market
movements of the underlying investments that support them.
o The new expected credit losses impairment model is expected to have an immaterial impact on our financials given the
high quality of our investment portfolio.
Though IFRS 9 will result in increased volatility to Net income and EPS, it will not impact BVPS.
Impact to
Equity & Ratios
o
As mentioned above, impact to BVPS upon transition is not expected to be significant
o Changes from IFRS 9 investment classification could bring volatility to AROE and ROE, with the expected fluctuation of
capital markets resulting in a positive impact over time.
o No significant impact to our adjusted debt-to-capital ratio expected, and no change to our overall capital framework.
Overall impact on equity, adjusted debt-to-total capital and capital framework is
not expected to be significant, but IFRS 9 could result in volatility to AROE and ROE.
118 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Reference to our Consolidated financial statements for the year ended December 31, 2022
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
37.2 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 for the year ended December 31, 2022
Global economic environment
Business combinations and disposals
Valuation of claims liabilities
Impairment of goodwill and intangible assets
Note 3.2
Note 5.3
Note 11.3
Note 15.2
Impairment of financial assets
Measurement of income taxes
Valuation of defined benefit obligation
Note 25.2
Note 27.3
Note 30.7
37.3 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. Key management personnel
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.
37.4 Financial instruments
An important portion of our Consolidated balance sheets is composed of financial instruments.
Reference to our Consolidated financial statements for the year ended December 31, 2022
Summary of significant accounting
policies
Derivative financial instruments
Fair value measurement
Note 2
Note 8
Note 9
INTACT FINANCIAL CORPORATION 119
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
37.5 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, 2022. 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.
37.6
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 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, 2022.
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 2022 that have materially affected, or are reasonably likely to materially
affect, the Company’s ICFR.
120 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 38 - Shareholder information
38.1 Authorized share capital and outstanding share data
Our authorized share capital consists of an unlimited number of common shares and Class A shares.
Table 61 – Outstanding share data (number of shares)
As at February 7, 2023
Common shares
Class A
Series 1 preferred shares
Series 3 preferred shares
Series 5 preferred shares
Series 6 preferred shares
Series 7 preferred shares
Series 9 preferred shares
Series 11 preferred shares
175,256,968
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
6,000,000
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.
38.2 Quarterly dividends declared on common shares and preferred shares
Table 62 – Dividends declared per share
Common shares
Class A
Series 1 preferred shares
Series 3 preferred shares
Series 5 preferred shares
Series 6 preferred shares
Series 7 preferred shares
Series 9 preferred shares
Series 11 preferred shares
Q1-2023
1.10
0.3025625
0.2160625
0.325
0.33125
0.30625
0.3375
0.328125
Q4-2022
1.00
0.21225
0.2160625
0.325
0.33125
0.30625
0.3375
0.328125
Q4-2021
0.91
0.21225
0.2160625
0.325
0.33125
0.30625
0.3375
-
On February 7, 2023, the Board of Directors approved the quarterly dividend for Q1-2023. See Section 28.4 - Common shareholder
dividends
38.3 Expected release dates of our financial results
Q1-2023
May 10, 2023
Q2-2023
Q3-2023
Q4-2023
August 2, 2023
November 7, 2023
February 13, 2024
INTACT FINANCIAL CORPORATION 121
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 39 - Selected annual and quarterly information
39.1 Selected annual information
Table 63 – 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
Series 11 Preferred Shares
Investments
Total assets
Total financial liabilities
Equity attributable to shareholders
2022
22,655
21,053
21,615
2,420
2,424
13.46
4.00
0.85
0.86
-
1.30
1.33
1.23
1.35
1.04
35,601
64,959
36,346
15,400
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
1 This measure has been adjusted to align with our Consolidated financial statements. Comparative figures are reported on the same basis.
39.2 Selected quarterly information
Table 64 – Selected quarterly information1
Q4
5,528
5,125
5,442
5,004
167
(188)
427
91.5%
279
93
601
419
Q3
5,796
5,443
5,244
4,880
229
(143)
362
92.6%
232
111
488
370
Q2
6,238
5,807
5,118
4,758
248
(179)
441
90.7%
211
141
569
1,184
2022
Q1
5,093
4,678
5,091
4,742
182
(223)
396
91.7%
205
92
488
447
Q4
5,318
5,017
5,270
4,931
186
(160)
600
87.8%
220
77
679
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
412
370
1,183
459
692
295
566
514
Direct premiums written
Operating DPW
Segment operating revenues1
Operating NEP
Current year CAT losses
Favourable PYD
Underwriting income
Operating combined ratio2
Operating net investment income
Distribution income
NOI
Net income
Net income attributable to
shareholders
Per share measures, basic and
diluted (in dollars)
NOIPS
EPS
122 INTACT FINANCIAL CORPORATION
2.70
2.02
1 This measure has been adjusted to align with our Consolidated financial statements. Comparative figures are reported on the same basis.
2 See Section 12 – Seasonality of our P&C insurance business.
3.14
6.64
3.78
3.85
2.70
2.53
2.87
1.60
3.26
3.59
3.34
2.26
2.40
3.51
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
Section 40 - Glossary and definitions
This icon represents data relevant to environmental, social and governance (ESG) disclosure, and its impact on our results where
applicable.
40.1 Glossary of abbreviations
ABI
Description
Association of British Insurers
Moody’s
Description
Moody’s Investor Service Inc.
AEPS
Adjusted EPS
AFS
AMF
AOCI
AROE
bps
BVPS
CAD
Available for sale
Autorité des marchés financiers
Accumulated OCI
Adjusted ROE
Basis points
Book value per share
Canadian Dollar
MGA
MYA
MYE
NCI
NCIB
NAIC
NEP
NOI
Managing general agent
Market yield adjustment
Market yield effect
Non-controlling interests
Normal course issuer bid
National Association of Insurance Commissioners
Net earned premiums
Net operating income
CAGR
Compound annual growth rate
NOIPS
NOI per share
Company action level
OCI
Other comprehensive income
CAL
CAN
CAT
CL
DB
EPS
ESG
FCA
F/S
Canada
Catastrophe
Commercial lines
Defined benefit
DBRS
Dominion Bond Rating Services
DC
Defined contribution
DKK (kr.)
Danish krone, Denmark’s official currency
DPW
Direct premiums written
OROE
Operating ROE
OSFI
P&C
PA
PL
PP
PRA
PTOI
Office of the Superintendent of Financial Institutions
Property & Casualty
Personal auto
Personal lines
Personal property
Prudential Regulatory Authority
Pre-tax operating income
Earnings per share to common shareholders PYD
Prior year claims development
Environmental, Social and Governance
Financial Conduct Authority
Financial Statements
Fitch
Fitch Ratings Inc.
FVTPL
Fair value through profit and loss
RBC
ROE
SCR
SL
SME
Risk-based capital (US)
Return on equity
Solvency Capital Requirement (Europe)
Specialty lines
Small and medium-sized enterprise
GBP (£)
British pound sterling, UK’s official currency
S&P
Standard & Poor’s
IFRS
KPI
MBS
MCT
International Financial Reporting Standards
TSX
Toronto Stock Exchange
Key performance indicator
Mortgage-backed securities
Minimum capital test (Canada)
UK
UK&I
US
United Kingdom
United Kingdom and International
United States
MD&A
Management’s Discussion and Analysis
USD (US$) US Dollar
INTACT FINANCIAL CORPORATION 123
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2022
(in millions of Canadian dollars, except as otherwise noted)
40.2 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. Our CAT threshold is as follows; P&C Canada: $10 million, P&C UK&I: £7.5
million, P&C US: US$5 million and IFC aggregate threshold: $15 million (combined impact across all segments of $15 million or
more, effective January 1, 2023).
• 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.
124 INTACT FINANCIAL CORPORATION
Note www
Intact Financial Corporation
Consolidated financial statements
For the years ended December 31, 2022 and 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 7, 2023
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, 2022 and 2021, 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, 2022 and 2021, 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 consolidated financial statements of the current period. These matters were addressed in the context of the
audit of the consolidated 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 consolidated
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
consolidated 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 consolidated 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, 2022, the
Group has recognized $25 billion in claims liabilities on its consolidated balance sheet, which represent 51% of its
total liabilities.
A member firm of Ernst & Young Global Limited
– 2 –
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, including the impact of the changes in the prevailing
social, economic and legal environment. As a result, estimates of claims liabilities have a high degree of estimation
uncertainty and may materially change 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;
• Obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls
related to the handling portion of the claims liabilities processes, including the integrity of data flows through
the administration systems for the Canada and United States segments;
• 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 reprojection 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 changes in the prevailing social,
economic and legal environment that could affect claims settlement in terms of speed or amount. The high
degree of uncertainty 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.
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.
A member firm of Ernst & Young Global Limited
– 3 –
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.
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;
A member firm of Ernst & Young Global Limited
– 4 –
•
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’s 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 7, 2023
A member firm of Ernst & Young Global Limited This page intentionally left blank
INTACT FINANCIAL CORPORATION
Consolidated financial statements
For the years ended December 31, 2022 and 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 ................................................................................................................................ 24
Note 5 – Business combinations and disposals .................................................................................................................................. 24
Note 6 – Investments .......................................................................................................................................................................... 27
Note 7 – Financial liabilities related to investments ............................................................................................................................ 29
Note 8 – Derivative financial instruments............................................................................................................................................ 30
Note 9 – Fair value measurement ...................................................................................................................................................... 33
Note 10 – Financial risk ...................................................................................................................................................................... 34
Note 11 – Claims liabilities.................................................................................................................................................................. 42
Note 12 – Unearned premiums ........................................................................................................................................................... 45
Note 13 – Insurance risk ..................................................................................................................................................................... 45
Note 14 – Reinsurance ....................................................................................................................................................................... 48
Note 15 – Goodwill and intangible assets ........................................................................................................................................... 51
Note 16 – Investments in associates and joint ventures ..................................................................................................................... 53
Note 17 – Property and equipment ..................................................................................................................................................... 53
Note 18 – Other assets and other liabilities ........................................................................................................................................ 53
Note 19 – Assets held for sale ............................................................................................................................................................ 54
Note 20 – Debt outstanding ................................................................................................................................................................ 55
Note 21 – Common shares and preferred shares ............................................................................................................................... 58
Note 22 – Non-controlling interests .................................................................................................................................................... 61
Note 23 – Capital management .......................................................................................................................................................... 62
Note 24 – Net investment income ....................................................................................................................................................... 63
Note 25 – Net gains (losses) .............................................................................................................................................................. 64
Note 26 – Acquisition, integration and restructuring costs .................................................................................................................. 65
Note 27 – Income taxes ...................................................................................................................................................................... 65
Note 28 – Earnings per share ............................................................................................................................................................. 68
Note 29 – Share-based payments ...................................................................................................................................................... 68
Note 30 – Employee future benefits ................................................................................................................................................... 70
Note 31 – Segment information .......................................................................................................................................................... 78
Note 32 – Additional information on the Consolidated statements of cash flows ................................................................................ 81
Note 33 – Related-party transactions ................................................................................................................................................. 82
Note 34 – Commitments and contingencies ....................................................................................................................................... 83
Note 35 – Disclosures on rate regulation ............................................................................................................................................ 84
Note 36 – Standards issued but not yet effective ............................................................................................................................... 85
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
Assets 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
Total liabilities and equity
See accompanying notes to the Consolidated financial statements.
On behalf of the Board:
Charles Brindamour
Director
Jane E. Kinney
Director
Note
2022
2021
6
$
14
27
16
17
15
15
18
19
11
12
7
27
20
18
21
21
22
$
$
$
$
1,010 $
27,095
1,421
4,598
476
1,001
35,601
8,028
5,709
257
782
2,062
845
778
4,700
3,350
2,847
-
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
64,959 $
66,349
25,144 $
11,997
189
31
694
4,522
6,697
49,274 $
7,542 $
1,322
269
7,352
(1,124)
(8)
47
15,400
285
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
$
$
15,685 $
16,783
64,959 $
66,349
INTACT FINANCIAL CORPORATION 3
INTACT FINANCIAL CORPORATION
Consolidated statements of income
(in millions of Canadian dollars, except as otherwise noted)
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
Gain on sale of businesses
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.
Note
2022
$
22,655 $
(2,586)
20,069
(277)
19,792
312
966
545
21,615
(11,022)
(6,534)
(35)
(429)
-
421
103
(177)
(353)
(647)
2,942
(522)
24
11
24
25
5
19
16
26
27
$
2,420 $
2,424
(4)
2,420 $
175.6
13.46 $
4.00 $
$
$
$
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
4
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated statements of comprehensive income
(in millions of Canadian dollars, except as otherwise noted)
Years ended December 31,
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)
Income tax benefit (expense)
Reclassification of net losses (gains)
Income tax (benefit) expense
Foreign exchange gains (losses) on:
Translation of foreign operations
Reclassification of net gains
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.
Note
2022
$
2,420 $
2021
2,088
(1,893)
456
(295)
92
(1,640)
17
(2)
(23)
3
(5)
139
(15)
(113)
(10)
1
32
(1,612)
(350)
(57)
(407)
(2,019)
445
(154)
(289)
99
101
(26)
(1)
32
-
5
(11)
-
23
-
12
16
134
352
(80)
272
406
$
401 $
2,494
403
(2)
$
401 $
2,459
35
2,494
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, 2022
$
7,576 $
1,175 $
211 $
6,183 $
529 $
1,109 $ 16,783
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Preferred shares issued
Common shares repurchased for
cancellation
Dividends declared on:
Common shares
Preferred shares
Share-based payments
Non-controlling interests:
Dividends
Redemption
Sale of business
Other
21
21
22
5
-
-
-
-
(36)
-
-
-
-
-
-
2
-
-
-
147
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
58
-
-
-
-
2,424
(407)
2,017
-
(114)
(702)
(60)
(32)
-
60
-
-
-
(1,614)
(1,614)
-
-
-
-
-
-
-
-
-
(4)
2
(2)
-
-
-
-
-
(24)
(510)
(288)
-
2,420
(2,019)
401
147
(150)
(702)
(60)
26
(24)
(450)
(288)
2
Balance as at December 31, 2022
$
7,542 $
1,322 $
269 $
7,352 $
(1,085) $
285 $ 15,685
Balance as at January 1, 2021
$
3,265 $
1,175 $
187 $
4,547 $
409 $
- $ 9,583
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)
-
120
120
-
-
-
-
-
-
-
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
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)
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 combinations, net of cash acquired
Proceeds from the sale of businesses, net of cash disposed
Proceeds from sale of investments
Purchases of investments
Proceeds from (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
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
Proceeds from issuance of common shares, net
Proceeds from issuance of preferred shares, net
Repurchase of common shares for cancellation
Repurchase of common shares for share-based payments
Payment of dividends on common shares and preferred shares
Payment of dividends to non-controlling interests
Redemption of 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
2022
2021
32
32
5
5
20
20
20
21
21
21
29
22
$
2,942 $
(408)
926
205
3,665
(239)
1,295
21,365
(24,521)
(235)
(411)
(2,746)
(111)
-
1,258
(1,700)
(302)
-
146
(150)
(112)
(762)
(24)
(450)
(2,207)
(1,288)
2,276
22
2,568
(783)
191
1,170
3,146
(11,076)
7,209
16,442
(18,118)
(102)
(327)
(5,972)
(97)
(15)
1,815
(1,429)
439
4,263
-
-
(81)
(679)
(27)
-
4,189
1,363
917
(4)
$
1,010 $
2,276
600
410
1,010
176
634
355
901
1,375
2,276
191
445
323
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.
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, Suite 1500, Toronto, Ontario, Canada, M5G 0A1.
Note 2 – Summary of significant accounting policies
2.1 Basis of presentation ................................................................................................................................................................... 9
2.2 Basis of consolidation ................................................................................................................................................................ 10
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 .................................................................................................................................................... 12
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 .............................................................................................................. 15
d) Derecognition 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
2.8 Investments in associates and joint ventures .......................................................................................................................... 19
2.9 Property and equipment ............................................................................................................................................................. 19
2.10 Investment property and rental income .................................................................................................................................. 20
2.11 Leases ........................................................................................................................................................................................ 20
2.12 Assets 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 ................................................................................. 20
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 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
ATRA
CAD
CALs
CAN
CDOR
CGU
CPI
CRA
DB
DKK (kr.)
DPW
DSU
EPS
ESOP
ESPP
EUR (€)
FA
FVTOCI
FVTPL
GBP (£)
IAS
IASB
IBNR
Asset-backed securities
Available-for-sale
Autorité des marchés financiers
Accumulated other comprehensive income
Alternative reference rate
Alberta Tax and Revenue Administration
Canadian Dollar
Company action levels
Canada
Canadian Dollar Offered Rate
Cash generating unit
Consumer price index
JV
LAE
LTIP
MBS
MCT
MD&A
MYA
NCI
NCIB
NEP
NOI
OCI
OSFI
Canada Revenue Agency
P&C
Defined benefits
PSU
Danish krone, Denmark’s official currency
PTOI
Direct premiums written
RBC
Deferred share unit
ROE
Earnings per share to common shareholders
RPI
Employee stock option plan
RQ
Employee share purchase plan
RSU
Euro, European Union’s official currency
SAR
Facility Association
Fair value through other comprehensive income SCR
Fair value through profit and loss
British pound sterling, UK’s official currency
International Accounting Standard
International Accounting Standards Board
Insurance claims incurred but not reported by
SOFR
TSX
UK
UK&I
US
policyholders
Joint ventures
Loss adjustment expenses
Long-term incentive plan
Mortgage-backed securities
Minimum capital test (Canada)
Management’s Discussion and Analysis
Market-yield adjustment
Non-controlling interests
Normal course issuer bid
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
Retail price index
Revenu Québec
Restricted stock units
Stock appreciation rights
Solvency Capital Requirement (Europe)
Secured Overnight Financing Rate
Toronto Stock Exchange
United Kingdom
United Kingdom and International
United States
IBOR
IFRS
Interbank offered rate
International Financial Reporting Standards
USD
US Dollar
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 7, 2023.
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.
The Company presents its Consolidated balance sheets broadly in order of liquidity.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 recognized 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.
Table 2.1 – Basis of consolidation
Investment category
Subsidiaries
Entities over which the Company:
• has the power over the relevant activities of the investee;
•
is exposed, or has rights to variable returns from its
involvement with the investee; and
• has the ability to affect those returns through its power over
the investee.
Associates
Entities over which the Company:
• has the power to participate in the decisions over the
relevant activities of the investee, but
• does not have control.
Joint ventures
Joint arrangements whereby the parties have:
•
joint control of the arrangements, requiring unanimous
consent of the parties sharing control for strategic and
operating decision making; and
• 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
Generally, an equal
percentage of
voting rights from
each party to the
joint arrangement
Equity method
Note 2.8 for details
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 recognized 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.
10
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Premium modifications are recognized 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.
b) Claims liabilities
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 recognized. 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.
d) Deferred acquisition costs
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 recognized in Underwriting expenses. Deferred acquisition costs are written off when the corresponding
contracts are settled or cancelled.
INTACT FINANCIAL CORPORATION 11
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Liability adequacy test
e)
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.
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 recognized 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 recognized in Net gains
(losses).
The effective portion of designated cash flow
hedges and net investment hedges in foreign
operations is recognized 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
recognized in Acquisition, integration and
restructuring costs. Refer to Note 2.4 b) (Level
3) hereafter for more details on the fair value
measurement.
12
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Classification
Amortized cost
- Cash and
cash
equivalents,
loans and
receivables
Amortized cost
- Other
financial
liabilities
Financial
instruments Description
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
Debt
outstanding
Financial assets with fixed or determinable payments not
quoted in an active market (including securities purchased
under reverse repurchase agreements).
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.
Initial and subsequent 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 recognized in Net gains (losses) when
realized or impaired.
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 recognized in Net gains (losses) when
the liability is extinguished.
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.
Initially measured at fair value at the amount
owing.
Subsequently measured at amortized cost using
the effective interest method.
b) Fair value measurement
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
• Government debt securities1
• Common shares and preferred shares
•
•
Investments in mutual funds
Exchange-traded derivatives
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
• Government and Corporate debt securities not deemed to be Level 1
• Debt outstanding2
•
ABS and MBS
• Over-the-counter derivatives
•
•
•
Loans2
Embedded derivatives related to perpetual preferred shares with call option
Private funds
• Contingent considerations
•
Investment property
1 Includes securities issued by governments and government agencies of the following countries: Canada, US, UK, Germany, France, Italy and Japan.
2 Measured at amortized cost with fair value disclosed.
Level 1
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.
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
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 recognized 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.
• Private funds – 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.
•
Investment property – The fair value is determined, at least annually, at their highest and best use by external independent
valuers. 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.
14
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
c) Derivative financial instruments and hedging
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 recognized as assets while derivative financial instruments with a
negative fair value are recognized as liabilities. Changes in fair value are recognized 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 recognized in
Foreign exchange gains (losses) in OCI.
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 recognized
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 and held for trading
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) in Net income. Refer to Note 8 – Derivative
financial instruments for details.
d) Derecognition of financial assets and financial liabilities
Financial assets are no longer recognized 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
recognized when they have expired or have been cancelled. Refer to Table 2.2 for the initial recognition of financial assets and
financial liabilities.
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.
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
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 recognized 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 in an entity in which the Company held an equity interest, that equity interest 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
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
Equity
Loans and receivables
• Debt securities
• Common shares
•
Loans and receivables:
•
•
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)
Difference between amortized cost
t
n
e
m
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.
n
o
i
t
a
c
i
l
p
p
A
-
e
r
u
s
a
e
m
s
s
o
L
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
a
v
l
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.
b)
Intangible assets
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 recognized 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 CAD
EUR vs CAD
DKK vs CAD1
As at December 31,
Average rate for the years
2022
1.354
1.637
1.449
0.195
2021
1.265
1.710
1.439
0.193
2022
1.302
1.607
1.370
0.184
2021
1.254
1.724
1.483
0.197
1 For 2021, the average rate reflects the period from June 1 to December 31, 2021 in relation to the RSA acquisition.
2.8 Investments in associates and joint ventures
The Company’s investments in associates and joint ventures are initially recognized 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 recognized 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.
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 incentive 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 Assets 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
a)
Income tax expense (benefit)
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 amount 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.
b) Recognition and offsetting of current tax assets and liabilities
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
20
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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, UK or Global Specialty Lines 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 recognized 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 recognized 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.
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 recognized in Retained earnings.
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
c) Deferred share unit plan
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 recognized in
Other liabilities. This liability is remeasured at each reporting date based on the current share price, with any fluctuations in the liability
also recognized as an expense until it is settled.
d) Employee stock option plan
In 2021, the Company established an 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 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 recognized 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 asset (liability)
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.
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 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.
22
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
2.16 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 recognized amounts of assets and liabilities, disclosure of contingent assets and liabilities
as at the balance sheet date, as well as recognized 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 amount of certain assets and
liabilities are as follows:
Description
Reference
Description
Global economic environment
Note 3.2
Impairment of financial assets
Business combinations and disposals
Note 5.3
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 27.6
Note 30.6
3.2 Global economic environment
Global financial market volatility
The Company continued to observe a significant volatility in financial markets, notably due to increasing inflation and interest rates
across all regions, with central banks reaffirming their intention to tackle inflation with further tightening measures.
The increased uncertainty required management to use judgements, estimates and assumptions related to the Company’s exposure
to the Global economic environment. As a result, additional disclosures were provided on the Company’s exposure to the Global
economic environment in the following areas:
•
•
•
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); and
The valuation of provisions in Claims liabilities to reflect the potential risks for certain lines of business (refer to Note 11 –
Claims liabilities).
COVID-19 pandemic
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. 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.
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. In the UK&I, the current
assessment of Claims liabilities reflects court judgments across the jurisdictions that business operates in, including those recently
announced in the UK in October 2022. These most recent judgments are complex and create a number of uncertainties and the
Company continues to monitor the progression of these judgements, including any appeal to a higher court. Based on information
currently known and management’s assumptions, the Company has made adequate provisions for, or has adequate reinsurance to
cover all insurance claims and legal proceedings.
Russia-Ukraine war
The war in Ukraine has caused instability in the global economy and markets. While its direct exposure to Russia and Ukraine is
immaterial, the Company continues to closely monitor for any indirect impacts.
INTACT FINANCIAL CORPORATION 23
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, 2022:
4.1 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 were applied prospectively with no impact on the Consolidated financial statements.
4.2 Demand Deposits with Restriction on Use Arising from a Contract with a Third Party (IAS 7 – Statement of
Cash Flows)
In April 2022, the IFRS Interpretations Committee (“IFRIC”) concluded that restrictions on the use of demand deposits arising from a
contract with a third party do not result in the deposits no longer being cash and cash equivalents when they are available to an entity
on demand. Therefore, they should be included in cash and cash equivalents in the statements of cash flows and balance sheet,
unless those restrictions change the nature of the deposit in a way that it would no longer meet the definition of cash in IAS 7,
Statement of Cash Flows (“IAS 7”).
As a result of the application of this interpretation, there was no change in the presentation of the Cash and cash equivalents on the
Company's consolidated balance sheets and consolidated statements of cash flows. Cash and cash equivalents with restricted use
was approximately $350 million as at December 31, 2022.
Note 5 – Business combinations and disposals
5.1 Business combinations
The Company completed the following acquisition during the year ended December 31, 2022:
Highland Insurance Solutions
On August 1, 2022, the Company completed the acquisition of Highland Insurance Solutions (“Highland”), the US construction division
of Tokio Marine Highland for a cash consideration of $239 million (USD186 million). Highland is a managing general agent specializing
in the builder’s risk segment of the construction industry and will expand the Company's portfolio of owned distribution assets. The
Company financed the acquisition through debt, refer to Note 20 – Debt outstanding for more details.
As at December 31, 2022, the purchase price allocation was finalized and mainly allocated to intangible asset and goodwill for an
amount of $181 million and $50 million, respectively.
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 Insurance Group PLC (“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 Scandinavian 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.
24
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The preliminary fair values have been reassessed following the acquisition. There were no significant adjustments during the 12-month
measurement period and the purchase price allocation is now final.
The following table summarizes the consideration and the final fair value of the assets acquired and liabilities assumed as at the
acquisition date including the Scandinavian assets and liabilities held for sale.
Table 5.1 – RSA’s business combination
As at the acquisition date (June 1, 2021)
Purchase price
Cash consideration1
Purchase price hedge
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
Gain on bargain purchase
Exchange rate (GBP/CAD)
GBP
CAD
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)
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)
1.714
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
Danish business (refer to Note 19 – Assets held for sale).
5 The Company repaid part of the debt assumed ahead of the maturity date.
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 5.3 below for details on how management determined
the fair value of the intangible assets on acquisition.
For the year ended December 31, 2022, the Company recognized acquisition and integration costs of nil and $272 million ($90 million
and $285 million – December 31, 2021), respectively. Refer to Note 26 – Acquisition, integration and restructuring costs.
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
5.2 Disposals
Codan DK
On June 11, 2021, the Company announced that together with Tryg it had entered into a definitive agreement to sell Codan Forsikring
A/S’s Danish business (“Codan DK”) to Alm. Brand A/S Group (“Alm. Brand”). On May 2, 2022, the sale was completed for a total
cash consideration of DKK13.2 billion ($2.4 billion), including post-closing adjustments. The Company received 50% of the total
proceeds, which represents approximately $1.2 billion. Refer to Note 19 – Assets held for sale for more details.
RSA Middle East
On April 4, 2022, the Company announced the sale of its 50% shareholding in Royal & Sun Alliance Insurance (“Middle East”) BSC
(c) (“RSA Middle East”) to National Life & General Insurance Company (“NLGIC”). The sale of RSA Middle East follows a strategic
review of operations by the Board of Directors.
RSA Middle East’s assets and associated liabilities were presented as held for sale until its disposal and measured at the lower of
their carrying amount or fair value less costs to sell. On July 7, 2022, the sale was completed for a total cash consideration of
$175 million (USD135 million). Upon closing, the Company derecognized $465 million of net assets, $288 million of NCI and $10
million of AOCI and other items. For the year ended December 31, 2022, the Company recorded a loss of $16 million in Net gains
(losses), $15 million net of tax of which $1 million was attributable to shareholders and $14 million was attributable to NCI.
5.3 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; and
• 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.
26
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, 2022
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, 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
Fair value
Classified
as FVTPL
Designated
as FVTPL
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12
476
-
488
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
634
-
648
-
-
4,880
3,327
187
207
224
14
-
8,839
-
-
-
-
1,427
-
-
10,266
-
-
3,860
3,690
202
215
298
9
-
8,274
-
-
-
-
1,831
-
-
10,105
AFS
-
1,786
4,828
6,974
1,168
1,248
590
156
1,506
18,256
15
311
1,095
1,421
3,159
-
-
22,836
-
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
Amortized cost
Cash and cash
equivalents
and loans
1,010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,001
2,011
2,276
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
930
3,206
Total
carrying
values
1,010
1,786
9,708
10,301
1,355
1,455
814
170
1,506
27,095
15
311
1,095
1,421
4,598
476
1,001
35,601
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
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.
INTACT FINANCIAL CORPORATION 27
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 amount of investments
Table 6.2 – Carrying amount of investments
As at
December 31, 2022
Cash and cash equivalents
Debt securities
Preferred shares1
Common shares
Investment property
Loans
December 31, 2021
Cash and cash equivalents
Debt securities
Preferred shares1
Common shares
Investment property
Loans
FVTPL
investments
Carrying
amount
Amortized
cost
Unrealized
gains2
Unrealized
losses2
Other
investments
Carrying
amount
Total
investments
Carrying
amount
-
8,839
-
1,439
476
-
10,754
-
8,274
-
1,845
634
-
10,753
1,010
19,416
1,637
3,272
-
1,001
26,336
2,276
17,003
1,676
3,420
-
930
25,305
-
75
13
124
-
-
212
-
145
183
475
-
-
803
-
(1,235)
(229)
(237)
-
-
(1,701)
-
(115)
(12)
(54)
-
-
(181)
1,010
18,256
1,421
3,159
-
1,001
24,847
2,276
17,033
1,847
3,841
-
930
25,927
1,010
27,095
1,421
4,598
476
1,001
35,601
2,276
25,307
1,847
5,686
634
930
36,680
1 Includes unrealized gains (losses) on embedded derivatives of $19 million as at December 31, 2022 ($(62) million as at December 31, 2021). These
derivatives were presented in Investments, with the related perpetual preferred shares, on the Consolidated balance sheets but their change in fair value
was recognized in Net gains (losses) in Net income.
2 Foreign amounts are translated using the period-end exchange rate.
IFRS 9 – Financial Instruments
The Company assessed the cash flow characteristics test (solely payments of principal and interest or “SPPI” test). 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,
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Loans
Derivative financial assets
SPPI
financial
assets
1,010
25,215
-
-
1,001
-
27,226
2022
Other
financial
assets
-
1,880
1,421
4,598
-
165
8,064
SPPI
financial
assets
2,276
23,114
-
-
930
-
26,320
Total
1,010
27,095
1,421
4,598
1,001
165
35,290
2021
Other
financial
assets
-
2,193
1,847
5,686
-
150
9,876
Total
2,276
25,307
1,847
5,686
930
150
36,196
The fair value of SPPI financial assets and other financial assets decreased by $1,929 million and $850 million, respectively, for the
year ended December 31, 2022 (decreased by $497 million and increased by $850 million as at December 31, 2021) respectively.
28
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
2022
697
3,731
2021
789
4,560
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 recognized 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, 2022 had a fair value of $3,616 million ($3,036 million as at December 31,
2021). The related collateral accepted represents approximately 105% of the fair value of the securities loaned as at December 31,
2022 (104% as at as at December 31, 2021).
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
2022
2021
33
147
9
189
32
224
9
265
INTACT FINANCIAL CORPORATION 29
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
foreign operations;- and
Net investment
hedge
• 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 number 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
Net investment
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
30
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
2022
2021
Notional
amount
Fair value
Asset
Liability
Notional
amount
Fair value
Asset
Liability
6,317
-
478
89
82
1,411
776
196
9,349
4,953
74
97
4,184
9,308
41
9,349
8,981
56
312
9,349
29
-
-
29
-
60
-
47
165
23
-
29
113
165
-
165
117
-
-
-
15
-
-
15
147
95
13
2
37
147
-
147
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
224
42
9
17
156
224
-
224
INTACT FINANCIAL CORPORATION 31
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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, 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.
Net investment 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 net investment hedge by USD200 million.
8.4 Hedge of an investment in associate held for sale
Fair value hedge
As part of the RSA acquisition on June 1, 2021, the Company hedged its exposure to the DKK relative to the CAD. The Company
used 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 recognized
in Net gains (losses) in Net income together with foreign exchange translation gains or losses on the asset held for sale.
Upon closing of the sale of Codan DK on May 2, 2022, the fair value hedge was derecognized. The gains (losses) related to re-
evaluation of the asset held for sale was offset by the changes in fair value of the hedging instruments.
Cash flow hedge
On July 1, 2021, the sale of Codan DK 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 (losses) in Net income.
Upon closing of the transaction on May 2, 2022, the cash flow hedge was settled, and a gain of $23 million, initially recognized in
AOCI, was reclassified in Net income as part of the gain on sale of Codan DK.
Refer to Note 19 – Assets held for sale for details.
32
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, 2022
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, 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)
Level 1
Valued using
quoted
(unadjusted)
market prices
Level 2
Level 3
Valued using models
with
observable
inputs
without
observable
inputs
1,786
-
4,354
-
-
-
-
-
6,140
1,421
4,433
-
-
11,994
9
516
4,352
-
-
-
-
-
-
4,868
1,844
5,471
-
-
12,183
9
5,354
10,301
1,355
1,455
814
170
-
19,449
-
-
-
165
19,614
147
-
4,755
10,508
1,302
1,365
986
79
-
18,995
3
-
-
150
19,148
224
-
-
-
-
-
-
-
1,506
1,506
-
165
476
-
2,147
-
-
-
-
-
-
3
-
1,441
1,444
-
215
634
-
2,293
-
Total
1,786
9,708
10,301
1,355
1,455
814
170
1,506
27,095
1,421
4,598
476
165
33,755
156
516
9,107
10,508
1,302
1,365
989
79
1,441
25,307
1,847
5,686
634
150
33,624
233
1 Includes perpetual preferred shares with call options amounting to $1,196 million as at December 31, 2022 ($1,574 million as at December 31, 2021).
The fair value of the embedded derivatives component amounting to $62 million as at December 31, 2022 ($139 million as at December 31, 2021) was
determined using a Level 3 methodology.
The fair value of loans was $971 million as at December 31, 2022 ($929 million as at December 31, 2021). The carrying amount of
certain short-term financial instruments not measured at fair value is a reasonable approximation of their fair value.
INTACT FINANCIAL CORPORATION 33
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
Years ended
December 31, 2022
Balance, beginning of the year
Total gain (losses) recognized in:
Net income
OCI
Purchases
Disposals
Exchange rate differences
Balance, end of year
December 31, 2021
Balance, beginning of the year
Business combinations
Total gain (losses) recognized in:
Net income
OCI
Purchases
Disposals
Exchange rate differences
Balance, end of year
AFS
Equity
Fixed
income
Classified as FVTPL
Equity
Investment
property
210
13
3
18
(74)
(8)
162
19
222
2
11
1
(43)
(2)
210
1,444
1
(22)
511
(468)
40
1,506
335
995
24
(3)
379
(287)
1
1,444
5
(1)
-
-
(1)
-
3
9
-
5
-
-
(9)
-
5
634
(17)
-
11
(114)
(38)
476
-
522
79
-
41
(4)
(4)
Total
2,293
(4)
(19)
540
(657)
(6)
2,147
363
1,739
110
8
421
(343)
(5)
634
2,293
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
34
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 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.
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.
Set forth limits in
terms of currency
exposure through
investment policies.
Set forth limits in terms of
direct property exposure
through investment
policies.
Using foreign
currency derivatives.
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 35
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
a) Sensitivity analysis to market risk
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)
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
December 31, 2022
December 31, 2021
Net income
OCI Net income
OCI
(166)
(15)
(36)
(368)
360
-
(87)
(38)
(22)
(386)
-
(75)
27
19
(51)
(237)
378
-
(446)
(88)
(40)
(445)
-
11
(14)
6
(296)
(384)
10
8
(305)
(411)
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 49% of government-related securities and 51% 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.
36
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
2022
2021
USD1
GBP
EUR
USD1
GBP DKK/EUR2
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 in foreign currency
Less: foreign-currency derivatives, notional
amount3
3,373
(3,349)
24
2,391
-
2,391
150
-
150
-
-
-
3,555
(974)
2,581
(56)
-
(56)
-
-
-
2,499
(2,499)
-
-
-
-
640
2,636
3,507
(279)
361
-
-
-
-
2,636
161
-
161
(1,337)
2,170
(60)
-
(60)
Total net currency exposure
2,565
2,525
361
2,797
2,110
-
-
-
574
(328)
246
842
(1,093)
(251)
(5)
1 Includes the Company’s operations in the US and the Middle East until the disposal of RSA Middle East in July 2022.
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
2022
2021
Fair value
Duration
(in years)
Fair value
Duration
(in years)
27,095
1,421
20,866
10,981
11,837
3.2
4.0
2.4
16.1
13.8
25,307
1,847
20,793
19,502
18,569
3.5
2.2
2.3
20.7
17.7
1 Refer to Table 11.3 - Discount rate and duration of claims liabilities and Table 30.1 – DB pension plan asset (liability) by country for more
details on duration 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.
As a result of the transition to ARRs as part of the IBOR reform, 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.
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The Company’s exposure to IBORs that have yet to transition to ARRs as at December 31, 2022 consists of financial assets of
approximately $3 million related to the CDOR, $271 million related to the USD LIBOR and nil related to GBP LIBOR. The Company
also has an unsecured revolving term credit facility of $1.5 billion, subject to USD Libor (refer to Note 20.4 - Other financing). The
Company holds other financial instruments indexed to US LIBOR and CDOR tenors which will mature before their related transition
dates. Therefore, no additional disclosure was provided.
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.
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 amount 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
2022
1,010
27,095
1,421
1,001
8,028
5,709
1,444
45,708
1,660
1,660
2021
2,276
25,307
1,847
930
7,838
5,616
1,755
45,569
1,859
1,859
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.
b) Credit quality
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 98% 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.
38
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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,
Preferred shares:
P1
P2
P3
2022
2021
38%
23%
22%
11%
6%
28%
30%
23%
12%
7%
100%
100%
2022
2021
1%
72%
27%
2%
75%
23%
100%
100%
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
2022
2021
54%
25%
9%
12%
55%
19%
11%
15%
100%
100%
33%
26%
11%
4%
26%
26%
33%
10%
4%
27%
100%
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 (refer to 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.
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
c) Counterparty credit risk
Counterparty credit risk arises from reinsurance (refer to 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.
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 $205 million as at December 31, 2022 ($189 million as at December 31, 2021) 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 (refer to Note 20.4 – Other financing).
40
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
As at
December 31, 2022
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Derivative financial assets
December 31, 2021
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Derivative financial assets
Less than
1 year
From 1 to
5 years
Over
5 years
No specific
maturity
Total
1,010
3,758
8
-
-
-
4,776
165
4,941
2,276
2,709
-
-
-
44
5,029
150
5,179
-
13,515
7
-
-
44
13,566
-
13,566
-
12,173
16
-
-
220
12,409
-
12,409
-
8,297
88
-
-
248
8,633
-
8,633
-
9,194
21
-
-
666
9,881
-
9,881
-
1,525
1,318
4,598
476
709
8,626
-
8,626
-
1,231
1,810
5,686
634
-
9,361
-
9,361
1,010
27,095
1,421
4,598
476
1,001
35,601
165
35,766
2,276
25,307
1,847
5,686
634
930
36,680
150
36,830
b) Financial liabilities by contractual maturity
Table 10.11 – Financial liabilities by contractual maturity
As at
December 31, 2022
Claims liabilities – undiscounted value1
Financial liabilities related to investments
Debt outstanding
Other liabilities:
Lease liabilities – undiscounted value2
Other financial liabilities
December 31, 2021
Claims liabilities – undiscounted value1
Financial liabilities related to investments
Debt outstanding
Other liabilities:
Lease liabilities – undiscounted value2
Other financial liabilities
Less than
1 year
From 1 to
5 years
Over
5 years
No specific
maturity
Total
10,590
180
135
112
4,431
15,448
9,904
256
892
120
3,366
14,538
12,312
-
1,355
316
608
14,591
11,700
-
1,952
321
572
14,545
2,705
-
3,032
288
22
6,047
2,504
-
2,385
284
24
5,197
-
9
-
-
251
260
-
9
-
-
998
1,007
25,607
189
4,522
716
5,312
36,346
24,108
265
5,229
725
4,960
35,287
1 Excludes periodic payment orders.
2 Lease liabilities includes discounting of $94 million as at December 31, 2022 ($87 million as at December 31, 2021) (refer to Note 18.2 – Other
liabilities).
INTACT FINANCIAL CORPORATION 41
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
Note 11 – Claims liabilities
On the Consolidated balance sheets, claims liabilities are recognized gross of the reinsurers’ share, which is included in Reinsurance
assets. Changes in claims liabilities, net of reinsurance, are recognized in Net claims incurred. At closing of the RSA acquisition in
2021, 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
Years ended December 31,
Balance, beginning of year
Business combinations (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
Disposal and other
Exchange rate differences
Balance, end of year
Direct
25,116
-
14,411
2022
Ceded
4,323
-
1,633
Net
20,793
-
12,778
Direct
12,780
11,679
10,606
2021
Ceded
1,381
3,087
864
Net
11,399
8,592
9,742
(637)
(8)
(629)
(611)
(62)
(549)
(1,347)
12,427
(12,264)
(134)
(1)
(220)
(1,127)
1,405
(1,375)
(50)
(25)
11,022
(10,889)
(84)
24
(255)
9,740
(9,040)
-
(43)
(29)
773
(905)
-
(13)
(226)
8,967
(8,135)
-
(30)
25,144
4,278
20,866
25,116
4,323
20,793
1 Includes the net favourable impact on claims liabilities resulting from the purchase of adverse development coverage (refer to Note 14 – Reinsurance).
11.2 Fair value of claims liabilities
The Company estimates that the fair value of its net claims liabilities approximates their carrying amounts.
Table 11.2 – Carrying amount of claims liabilities
As at December 31,
Undiscounted value
Effect of time value of money
Risk margin
Periodic payment orders1
2022
2021
Direct
Ceded
Net
Direct
Ceded
Net
25,607
(2,142)
1,266
413
25,144
4,168
(313)
232
191
4,278
21,439
(1,829)
1,034
222
24,108
(742)
1,328
422
20,866
25,116
3,952
(95)
271
195
4,323
20,156
(647)
1,057
227
20,793
1 The net claims liabilities are net of the discount and risk margin of $313 million as at December 31, 2022 ($332 million as at December 31, 2021).
Table 11.3 – Discount rate and duration of claims liabilities
As at December 31,
Discount rate
Average duration (in years)
Canada
4.25%
2.2
2022
UK&I1
4.17%
2.8
US
Canada
5.08%
2.1
1.68%
2.3
2021
UK&I1
3.10%
2.5
US
1.67%
2.2
1 Includes the discount rate and average duration of periodic payment orders of 4.00% and 18.1 years as at December 31, 2022 (4.00% and 17.7 years
as at December 31, 2021), respectively.
42
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.
A particular area of consideration during the year ended December 31, 2022 has been the emergence of increased inflationary trends.
The Company has observed inflation driven increases to the assessed cost of claims across many different lines of business and
types of claims, consistent with the general economic environment and the wider insurance industry. A lot of focus was put on
reviewing changes in inflation assumptions, updating methodologies to project the ultimate cost of claims given the changing trends,
ensuring consistency of reserving assumptions with other areas of the business and running sensitivity tests to understand the impact
of alternative assumptions in order to get comfort with final selections. Claims inflation is likely to remain as a key area of risk and
uncertainty for the purpose of estimating the ultimate cost of claims over 2023.
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 (refer to Note 3.2 Global economic environment). 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.
INTACT FINANCIAL CORPORATION 43
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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
+5%
+5%
+1%
2022
Canada
UK&I1
(493)
(126)
220
(241)
(37)
72
US
(91)
(12)
34
2021
Canada
UK&I1
(483)
(115)
210
(261)
(33)
84
US
(88)
(13)
34
1 Excludes periodic payment orders. A change of +0.5% in the discount rate of periodic payment orders would increase Net income by $18 million as at
December 31, 2022 ($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.
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, 2022
Total
2022
2021
2020
2019
2018
2017
2016
Accident year
2014
2015
2013 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
Discounting and risk
margin
Periodic payment orders1
7,294 6,661 5,110 4,675 4,226 4,114 3,506 3,033 2,847 2,786
6,373 4,800 4,568 4,131 3,966 3,544 2,930 2,775 2,724
4,578 4,507 4,142 3,934 3,550 2,965 2,769 2,689
4,533 4,187 3,934 3,612 2,986 2,786 2,680
4,008 3,949 3,658 3,007 2,797 2,676
4,073 3,672 3,021 2,786 2,685
3,644 3,013 2,780 2,656
3,002 2,765 2,645
2,747 2,639
2,669
7,294 6,373 4,578 4,533 4,008 4,073 3,644 3,002 2,747 2,669
(2,437) (1,773) (2,405) (2,599) (2,949) (2,932) (2,619) (2,470) (2,429)
21,439 7,294 3,936 2,805 2,128 1,409 1,124
712
383
277
240 1,131
(795)
222
Net claims liabilities
20,866
1 Refer to Table 11.2 - Carrying amount of claims liabilities.
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.
44
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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, 2022.
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.
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, 2022 and 2021.
Table 12.1 – Movements in unearned premiums
2022
2021
Years ended December 31,
Direct
Ceded
Net
Direct
Ceded
Net
Balance, beginning of year
Business combinations (Note 5)
Premiums written
Premiums earned
Disposal and other
Exchange rate differences
Balance, end of year
11,703
-
22,655
(22,181)
(155)
(25)
11,997
1,293
-
2,586
(2,389)
(15)
(44)
10,410
-
20,069
(19,792)
(140)
19
6,256
5,324
17,994
(17,866)
-
(5)
152
1,447
1,322
(1,628)
-
-
6,104
3,877
16,672
(16,238)
-
(5)
1,431
10,566
11,703
1,293
10,410
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 45
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
2022
2021
Net claims
liabilities
DPW
Net claims
liabilities
DPW
63%
27%
10%
66%
25%
9%
69%
20%
11%
66%
26%
8%
100%
100%
100%
100%
24%
17%
22%
8%
19%
10%
33%
7%
26%
4%
21%
9%
28%
18%
23%
8%
12%
11%
34%
6%
26%
4%
22%
8%
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.
46
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. Refer
to Note 14.3 – 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 (refer to Note 11.3 – Significant accounting judgments, estimates and assumptions for more details).
Refer to 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.
Regional Reserve Review Committees provide Chief Actuaries a forum to present their estimates to business stakeholders and get
their feedback to ensure consistency across divisions within each region on key assumptions. Additionally, the Group Chief Actuary
being a member of each Regional Reserve Review Committee ensures that macro-level assumptions are considered consistently
across regions.
INTACT FINANCIAL CORPORATION 47
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 14 – Reinsurance
14.1 Components of reinsurance assets
Reinsurance assets include the reinsurers’ share of claims liabilities and unearned premiums.
Table 14.1 – Components of reinsurance assets
As at December 31,
Reinsurers’ share of claims liabilities (Note 11.1)
Reinsurers’ share of unearned premiums (Note 12.1)
14.2 Net recovery (expense) from reinsurance
Table 14.2 – Net recovery (expense) from reinsurance
Years ended December 31,
Ceded earned premiums (Note 12.1)
Ceded claims incurred (Note 11.1)
Commissions earned on ceded reinsurance
2022
4,278
1,431
5,709
2022
(2,389)
1,405
175
(809)
2021
4,323
1,293
5,616
2021
(1,628)
773
102
(753)
14.3 Reinsurance net retention and coverage limits
In the ordinary course of business, the Company reinsures certain risks with 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 reinsurance retention and coverage limits for multi-risk events and catastrophes.
Table 14.3 – Reinsurance net retention and coverage limits
Years ended December 31,
Canadian events (in million of CAD)
Retention1
Coverage limits2
US events (in million of CAD)
Retention1
Coverage limits2
UK events (in million of GBP)
Retention1
Coverage limits2
2022
20213
200
7,200
125
1,225
75
1,350
150
5,300
150
445
n/a
n/a
1 Excludes reinstatement premium, tax impacts and co-participations between the retention level and coverage limits.
2 Represents the ground up limits before co-participations.
3 Excludes RSA’s operations which were covered by its own reinsurance program.
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 retention and coverage
limits for Canadian events, reflecting the addition of RSA. The retention and coverage limits for US events have been adjusted to
reflect all exposure in the US. For UK events, the Company maintained the same retention and coverage limits for 2022 and introduced
a small amount of co-participation in the program.
48
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Effective January 1, 2023, the Company reduced its coverage limits for Canadian events from $7.2 billion to $6.4 billion reflecting the
reduction in earthquake exposure in British Columbia. In addition, the Company increased its retention from $200 million to
$250 million for Canadian events to reflect reinsurance market conditions. For US events, the coverage limits and retention are $1.3
billion and $150 million, respectively, and for UK events, the coverage limits and retention are £1.6 billion and £125 million,
respectively. For US and UK events, the Company has increased its coverage limits for 2023 to reflect changes in exposures including
inflationary impacts.
The Company’s approach for setting limits in each country is consistent with prior years.
2021 RSA program
As at December 31, 2021, RSA was covered by its own reinsurance program for multi-risk events and catastrophes. Under the
property catastrophe reinsurance program, the retention and coverage limits 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 for multi-risk events and catastrophes.
Table 14.4 – RSA’s reinsurance net retention and coverage limits
Year ended December 31, 2021
Retention
Coverage limits
Canada (CAD)
UK (GBP)
75
3,200
75
1,350
In 2021, large net retained property risk and catastrophe losses were subject to an annual aggregate loss treaty. Coverage limits
under this treaty were triggered once cumulative qualifying large losses exceed £160 million, subject to a limit of £125 million and the
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 recognized in Acquisition, integration
and restructuring costs in Net income.
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 recoverable and
collectability of balances due from reinsurers is important to the Company’s financial strength.
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, 2022 and 2021, 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, 2022 and 2021.
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 from unauthorized reinsurers in the US and captive reinsurers in the UK&I. 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
As at December 31,
Collateral1
Policy liabilities supported by collateral
1 Consisting of cash, security agreements and letters of credit.
CAN
142
107
2022
UK&I
153
77
US
102
79
CAN
124
95
2021
UK&I
143
69
US
113
88
50
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 amount of goodwill and intangible assets.
Cost
Balance as at January 1, 2022
Business combinations (Note 5)
Acquisitions and costs capitalized
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2022
Accumulated amortization
Balance as at January 1, 2022
Amortization expense
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2022
Net carrying amount
Cost
Balance as at January 1, 2021
Business combinations (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 amount
Goodwill
Distribution
networks
Intangible assets
Customer
Relationships
and trade
names
Internally
developed
software
Total
Intangible
assets
3,066
50
168
-
66
3,350
-
-
-
-
-
3,408
181
-
(117)
75
3,547
(309)
(127)
9
(16)
(443)
3,350
3,104
2,813
-
259
-
(6)
3,066
-
-
-
-
-
2,051
1,365
-
(4)
(4)
3,408
(209)
(102)
-
2
(309)
3,066
3,099
1,031
-
95
(17)
(4)
1,105
(360)
(108)
3
(1)
(466)
639
560
352
120
-
(1)
1,031
(281)
(79)
-
-
(360)
671
1,321
5
310
(71)
(5)
1,560
(455)
(154)
12
(6)
(603)
957
740
379
241
(37)
(2)
1,321
(347)
(132)
23
1
(455)
866
5,760
186
405
(205)
66
6,212
(1,124)
(389)
24
(23)
(1,512)
4,700
3,351
2,096
361
(41)
(7)
5,760
(837)
(313)
23
3
(1,124)
4,636
Intangible assets under development amounted to $361 million as at December 31, 2022 ($295 million as at December 31, 2021).
These intangible assets are not subject to amortization but are tested for impairment on an annual basis.
INTACT FINANCIAL CORPORATION 51
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
a) Allocation of goodwill and intangible assets with indefinite lives to the group of CGUs
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
2022
2,336
1,014
3,350
2021
2,168
898
3,066
2022
829
9
838
2021
829
8
837
The RSA acquisition did not result in goodwill or intangible assets with indefinite lives (refer to Note 5 – Business combinations
and disposals).
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, 2022 and 2021.
The Canada and US groups of CGUs, which correspond to the Company’s operating segments level, were tested for impairment by
comparing their carrying amount 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 can use, for its current year impairment test, the most recent detailed calculation of the
recoverable amount made in a preceding year, 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. The impairment tests as at June 2022 and 2021 were performed
using the 2020 calculation of the recoverable amount for the Canada group of CGU and the 2021 calculation of the
recoverable amount for the US group of CGU.
Table 15.3 – Key assumptions used (groups of CGUs)
Canada
US
Terminal growth rate
Pre-tax discount rate
2022
2.5%
3.9%
2021
2.5%
3.9%
2022
11.1%
11.5%
2021
11.1%
11.5%
No impairment loss on goodwill or intangible assets with indefinite lives has been recognized for these CGUs for the years ended
December 31, 2022 and 2021.
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.
52
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
Years ended December 31,
Balance, beginning of year
Business combinations (disposals) and other
Dividends received
Share of profit (loss) recognized in:
Net income
OCI
Balance, end of year
Of which:
Associates
Joint ventures
2022
760
31
(49)
103
-
845
448
397
2021
811
(123)
(28)
87
13
760
378
382
During the year ended December 31, 2022, there were no events or changes in circumstances that indicated that the carrying amounts
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
Table 17.1 – Net carrying amount of property and equipment
As at December 31,
Right-of-use assets1
Furniture and equipment
Leasehold improvements
Land and buildings
2022
2021
462
134
123
59
778
465
140
107
62
774
1 Right-of-use assets mainly related to real estate for which additions for the year ended December 31, 2022 amounted to $89 million ($48 million –
December 31, 2021). Total additions to right-of-use assets related to business combinations were nil for the year ended December 31, 2022
($183 million – December 31, 2021)
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
Other investments
Reinsurance receivable
Other receivables and recoverables
Industry pools receivable
Financial assets related to investments
Prepaids
Accrued investment income
Premium and sale taxes receivable
Restricted funds
Other
2022
671
400
398
289
218
216
216
178
74
67
120
2,847
2021
1,027
282
400
294
219
500
161
174
58
73
143
3,331
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
18.2 Other liabilities
Table 18.2 – Components of other liabilities
As at December 31,
Reinsurance payable
Deposits received in connection with insurance contracts1
Commissions payable
Lease liabilities
Accrued salaries and related compensation
Account payables and accrued expenses
Premium and sale taxes payable
Industry pools payable
Pension plans in a deficit position and unfunded plans
Other payable to broker
Premiums payables by brokers to insurers
Collateral from third parties
Other post-employment benefits and other post-retirement benefits
Provisions2
Other
2022
1,505
942
763
622
513
450
424
228
176
153
107
105
85
85
539
6,697
2021
1,378
704
918
638
380
484
410
213
225
149
59
127
139
112
488
6,424
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 $19 million as at December 31, 2022 ($34 million –
December 31, 2021) as well as other provisions such as litigations and lease dilapidations and refurbishments.
Note 19 – Assets held for sale
19.1 Codan DK
On June 1, 2021, the Company acquired RSA, and on the same day, sold a portion of the Scandinavian operations to Tryg for £4.2
billion ($7.2 billion). From that date, the Company and Tryg co-owned the Danish business. On June 11, 2021, the Company
announced that together with Tryg it had entered into a definitive agreement to sell Codan DK to Alm. Brand. As a result, the
Company’s retained interest in the Danish business was classified as an investment in associate held for sale and was measured at
its fair value less cost to sell at the date of acquisition.
On May 2, 2022, the sale of Codan DK was completed for a total cash consideration of DKK13.2 billion ($2.4 billion), including post-
closing adjustments. The Company received 50% of the total proceeds, which represents approximately $1.2 billion.
For the year ended December 31, 2022, the Company recognized in Net income a gain on sale of business of $421 million, including
the impact of the hedges ($409 million net of tax on hedges) and post-closing adjustments. The fair value and cash flow hedges were
settled upon closing of the sale, refer to Note 8.4 – Hedges of an investment in associate held for sale for more details.
The proceeds from this sale were used to reduce debt and for general corporate purposes, refer to Note 20 – Debt outstanding for
more details.
54
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 20 – Debt outstanding
20.1 Summary of debt outstanding
Table 20.1 – Carrying amount of debt outstanding
As at December 31,
Medium-term notes
Series 2
Series 3
Series 5
Series 6
Series 7
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14 USD
2012 US senior notes
Term loans
USD first term loan
USD second term loan
Guaranteed subordinated
GBP Notes
US bonds
Commercial paper
Credit facility
Other debt
Maturity
date
Initial
term
(years)
Fixed
rate
Coupon
(payment)
Principal
amount
Carrying amount
(net of fees)
2022
2021
Nov. 2039
July 2061
June 2042
Mar. 2026
June 2027
Mar. 2025
Dec. 2030
Dec. 2050
May 2024
May 2028
May 2053
Sept. 2032
30
50
30
10
10
5
10
30
3
7
32
10
6.40% May & Nov.
Jan. & July
6.20%
5.16% June & Dec.
3.77% Mar. & Sept.
2.85% June & Dec.
3.69% Mar. & Sept.
1.93% June & Dec.
2.95% June & Dec.
1.21% May & Nov.
2.18% May & Nov.
3.77% May & Nov.
5.46% Mar. & Sept.
250
100
250
250
425
300
300
300
375
375
250
USD500
Oct. 2045
Oct. 2029
31
30
5.13%
Oct.
8.95% Apr. & Oct.
£160
USD9
May 2027
Various
248
99
249
249
424
299
299
298
374
373
248
669
-
-
-
285
17
135
2
7
248
99
249
249
423
299
298
298
374
373
248
-
352
101
600
307
16
439
-
9
Total debt outstanding before hybrid subordinated notes
Hybrid subordinated notes
Series 1
Total debt outstanding
Mar. 2081
60
4.13% Mar. & Sept.
250
4,275
4,982
247
4,522
247
5,229
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 $4,189 million as at December 31, 2022 ($5,552 million as at December 31, 2021) and
was established using valuation data from a benchmark firm. The Company is required to maintain certain financial ratios, which were
fully met as at December 31, 2022 and 2021.
20.2 Financing issued in 2022
Term Loan
• On July 29, 2022, the Company entered into a 24-month term loan agreement (the “USD third term loan”) for
an amount of $241 million (USD188 million), bearing interest at a rate of SOFR plus 35 bps.
•
The USD third term loan was repaid on September 22, 2022 using the proceeds of the Series 14 USD
medium-term note issuance.
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Series 14
Unsecured
Medium-Term
Notes
(USD)
• On September 22, 2022, the Company completed an offering of $674 million (USD500 million) principal
amount of Series 14 unsecured medium-term notes (the “USD notes”) through a private placement in Canada
and the United States. The USD notes bear interest at an annual rate of 5.459% until maturity on September
22, 2032, payable in semi-annual instalments, commencing on March 22, 2023.
•
•
The net proceeds received were used to reimburse, on September 22, 2022, the USD third term loan of
$254 million (USD188 million), and, on September 29, 2022, the USD first term loan of $107 million (USD80
million) in advance of its maturity date in November 2022.
In addition, the Company used the remaining net proceeds to fully reimburse the 2012 US senior notes of
$372 million (USD275 million) at maturity, on November 9, 2022.
Bank Term
Loan Facility
• On March 28, 2022, the Company entered into a nine-month bank term loan facility agreement of $350 million
at a rate of CDOR plus 25bps which was repaid on May 2, 2022 using part of the proceeds from the sale of
Codan DK to Alm. Brand, refer to Note 19 – Assets held for sale for more details.
20.3 Financing issued in 2021
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 recognized in Finance costs.
56
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 were issued with maturities of less than one year at varying interest or discount rates
depending on prevailing market rates.
The net proceeds were 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.
The remaining balance at the end of 2022 was $135 million at a weighted average rate of 4.42%.
20.4 Other financing
USD second term loan
On January 31, 2022, the Company repaid $45 million (USD35 million) of the principal amount ahead of the maturity date.
On May 2, 2022, the remaining principal amount of $570 million (USD443 million) was repaid using part of the proceeds from the sale
of Codan DK to Alm. Brand, refer to Note 19 – Assets held for sale for more details.
Credit facility
As at December 31, 2022 and 2021, the Company had an unsecured revolving term credit facility of $1.5 billion. On May 17, 2022,
the credit facility was extended by an additional twelve months, it now matures on May 17, 2027. As at December 31, 2022, $2 million
was drawn under this credit facility (nil as at December 31, 2021).
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
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 20.3 – Financing issued in 2021.
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 amount of £271 million
reflecting fair value adjustments on acquisition. The net cost of £4 million ($7 million) was recognized in Acquisition, integration and
restructuring costs.
Guaranteed subordinated 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 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 57
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
20.5 Movement in debt outstanding
Table 20.2 – Movement in debt outstanding
Years ended December 31,
Balance, beginning of year
Business combinations (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
Note 21 – Common shares and preferred shares
21.1 Authorized
2022
5,229
-
1,258
(302)
(1,700)
43
(6)
4,522
2021
3,041
1,421
1,815
439
(1,429)
26
(84)
5,229
Authorized share capital consists of an unlimited number of common shares and preferred shares (“Class A Shares”).
21.2 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 5
Series 6
Series 7
Series 9
Series 11
Total Class A
2022
2021
Number of
shares
Amount
(in millions)
Number of
shares
Amount
(in millions)
175,256,968
7,542
176,081,958
7,576
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
6,000,000
54,000,000
244
245
147
147
245
147
147
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
-
244
245
147
147
245
147
-
1,322
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 (in shares)
Common shares
Preferred shares
Class A shares
2022
2021
2022
2021
176,081,958
-
(824,990)
143,018,134
33,063,824
-
48,000,000
6,000,000
-
48,000,000
-
-
175,256,968
176,081,958
54,000,000
48,000,000
Years ended December 31,
Balance, beginning of year
Issued
Repurchased and cancelled
Balance, end of year
58
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
21.3 Financing issued in 2022
Series 11
Preferred
Shares
• On March 15, 2022, the Company completed a Class A Series 11 offering (the “Series 11 Preferred Shares”)
by issuing and selling 6,000,000 Series 11 Preferred Shares, at a price of $25.00 per share, for aggregate
gross proceeds of $150 million.
•
The holders of the Series 11 Preferred Shares are entitled to receive fixed quarterly non-cumulative
preferential cash dividends, if, as and when declared by the Board of Directors of the Company, on the last
day of March, June, September and December in each year at an annual rate equal to $1.3125 per share.
The initial dividend of $0.3848 per share was paid on June 30, 2022.
• On or after March 31, 2027, the Company may redeem, in whole or in part, at its option, the Series 11
Preferred Shares, subject to certain conditions.
• Share issuance costs of $4 million ($3 million net of tax), were accounted for as a reduction in preferred
shares.
•
The proceeds of this offering were used to partially fund the redemption of the Tier 1 notes, refer to Note 22
– Non-controlling interests for more details.
21.4 Financing issued in 2021
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 combinations for more details.
21.5 Preferred share conversions and dividend rate reset
Series 1 Preferred Shares
On December 1, 2022, the Company announced that it did not intend to exercise its right to redeem the Company’s Non-cumulative
Rate Reset Class A Series 1 Preferred Shares (the “Series 1 Preferred Shares”) on December 31, 2022. Holders of Series 1 Preferred
shares could elect to convert their shares into Non-cumulative Floating Rate Class A Series 2 Preferred Shares (the “Series 2
Preferred Shares”) on a one-for-one basis on December 31, 2022. There were less Series 1 Preferred Shares tendered for conversion
than the minimum required for the ability to proceed with the conversion, in accordance with the terms of the Series 1 Preferred
Shares. As a result, no conversion took place and the dividend rate was reset on December 31, 2022 to 4.841%, which will prevail
from and including December 31, 2022 to but excluding December 31, 2027.
Series 3 Preferred Shares
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.
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
21.6 Dividends declared and paid per share
Table 21.3 – Dividends declared and paid per share (in dollars)
Years ended December 31,
Common shares
Preferred shares
Series 1
Series 3
Series 4
Series 5
Series 6
Series 7
Series 9
Series 11
2022
4.00
0.85
0.86
-
1.30
1.33
1.23
1.35
1.04
2021
3.40
0.85
0.84
0.52
1.30
1.33
1.23
1.35
-
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 annual dividend rate for the five-year period from and including December 31, 2022 to
December 30, 2027 is 4.841% (3.396% from December 31, 2017 to December 30, 2022), subject to a rate reset every five
years at a rate equal to the five-year Government of Canada bond yield plus 1.72%. The next dividend rate reset will occur
on December 31, 2027.
• 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 21.5 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.
• Series 11 Preferred Shares – The annual dividend rate is 5.25% and is not subject to a rate reset. The initial dividend paid
on June 30, 2022 amounted to $0.3848 per share.
21.7 Normal course issuer bid
On February 17, 2022, the Company commenced a NCIB to repurchase, for cancellation, up to 5,282,458 common shares during the
next twelve months, representing approximately 3% of its issued and outstanding common shares. The actual number of common
shares purchased for cancellation and the timing of any such purchases is determined by the Company.
The Company has entered into an automatic share purchase plan (“ASPP”) with a designated broker to repurchase its common
shares during the NCIB. The ASPP allows for purchases of shares during pre-determined black-out periods, subject to certain
parameters. Outside of these black-out periods, shares will be purchased in accordance with management’s discretion. The price for
any shares will be the market price at the time of acquisition or such other price as may be permitted by the TSX.
Subsequent to year end, on February 7, 2023, the Board authorized the renewal of the NCIB for the repurchase of up to 3% of the
Company’s issued and outstanding common shares over the subsequent 12-month period, subject to TSX approval.
60
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The following table presents the summary of the common shares repurchased for cancellation under the NCIB.
Table 21.4 – NCIB
Year ended December 31,
Common shares repurchased for cancellation (in shares)
Average price (in dollars)
Total consideration paid
2022
824,990
182.05
150
The cost paid, including fees, was first charged to Share capital to the extent of the average carrying amount of the common shares
purchased for cancellation and the excess of $114 million was charged to Retained earnings as at December 31, 2022.
Note 22 – Non-controlling interests
Table 22.1 – Non-controlling interests recognized in the consolidated balance sheet
As at December 31,
RSA Middle East
Tier 1 notes1
Preferred shares1
2022
-
-
285
285
2021
314
510
285
1,109
1 Related to the Tier 1 notes and Preferred shares issued by RSA, a subsidiary of the Company, as a result presented as NCI.
RSA Middle East
On July 7, 2022, the Company completed the sale to NLGIC of its 50% shareholding in RSA Middle East, which itself owned 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. Refer to Note 5 – Business
combinations and disposals for more details.
Tier 1 notes
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); and
• Danish Krone 650 million at 3-month Cibor +485bps (equivalent to 4.6% coupon on issue).
Upon closing of the RSA acquisition in 2021, the Tier 1 notes were remeasured at fair value of $510 million (£298 million) using
average quotes obtained from dealer banks.
On March 7, 2022, the Company provided notice of redemption of the restricted Tier 1 notes (the “notes”) issued by RSA. The notes,
for which the carrying amount was $510 million, were redeemed at their principal amount of approximately $450 million together with
accrued and unpaid interest on the first call date on March 27, 2022. A gain of $60 million on the redemption of the notes was
recognized in Retained earnings.
The Company also settled foreign currency forward contracts used to economically hedge this transaction and recognized a loss of
$18 million during the year ended December 31, 2022 in Net gains (losses).
The redemption of the notes was financed by the issuance of a bank term loan facility and preferred shares. Refer to Note 20 – Debt
outstanding and Note 21 – Common shares and preferred shares for more details.
INTACT FINANCIAL CORPORATION 61
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Preferred shares
The Company assumed preferred shares issued by RSA which have a nominal value of £1 each, are not redeemable, 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, 2022, shares issued to and
fully paid by preferred shareholders were 125,000,000.
Upon closing of the RSA acquisition in 2021, preferred shares were remeasured at fair value of $285 million (£166 million) using a
quoted market price.
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, 2022 and 2021, each of the Company’s regulated P&C insurance subsidiaries was in compliance with regulatory
capital requirements.
62
INTACT FINANCIAL CORPORATION
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&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 Solvency capital requirement (“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. 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
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
Other investments
Dividend income
Investment property rental income
Total investment income
Expenses
2022
2021
223
351
64
638
81
140
83
1
305
23
966
(35)
931
181
212
33
426
85
125
86
1
297
17
740
(34)
706
INTACT FINANCIAL CORPORATION 63
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)
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 (Note 8.3):
Purchase price
Net investment
Gain related to an investment in associate1
Other net foreign currency gains (losses)
Other gains (losses)3, 4
Fixed
Income
2022
Equity and
property
Total
Fixed
Income
2021
Equity and
property
Total
(862)
-
(69)
(931)
-
20
20
-
-
177
-
(35)
-
451
416
38
(17)
21
71
(17)
-
(83)
(897)
-
382
(515)
38
3
41
71
(17)
177
(83)
(267)
-
-
(267)
-
-
-
-
-
10
(7)
(734)
408
(326)
(264)
458
6
381
845
(494)
(137)
(631)
(96)
79
-
(85)
112
-
-
-
(147)
44
(429)
191
6
381
578
(494)
(137)
(631)
(96)
79
10
(92)
(152)
(71)
36
273
(1)
164
249
1 Includes a net gain of $66 million related to a venture investment recognized 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 recognized in the line net foreign currency gains (losses).
3 Includes the net loss of $16 million recognized in 2022 resulting from the sale of RSA Middle East, refer to Note 5 – Business combinations and
disposals for more details.
4 Includes an unrealized gain of $41 million recognized in 2022 ($68 million – December 31, 2021) related to certain venture investments remeasured at
fair value. 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.
64
INTACT FINANCIAL CORPORATION
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
Years ended December 31,
Acquisition costs
Integration costs
Restructuring and other costs
Note 27 – Income taxes
27.1 Income tax expense recognized in Net income
Table 27.1 – Components of income tax expense recognized in Net income
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 to prior years
27.2 Effective income tax rate
2022
-
294
59
353
2021
90
285
54
429
2022
2021
546
(2)
(18)
(4)
522
496
(9)
(8)
1
480
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
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 and associates
Change in unrecognized deferred income taxes
Difference in tax rates of subsidiaries, foreign entities and associates
Non-deductible expenses
Other
Effective income tax rate
2022
25.9%
-
(3.8)%
(1.4)%
(0.9)%
(1.5)%
(0.8)%
0.4%
(0.2)%
17.7%
2021
25.9%
(2.1)%
(1.5)%
(2.3)%
(0.9)%
(0.9)%
(0.9)%
1.0%
0.4%
18.7%
INTACT FINANCIAL CORPORATION 65
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
27.3 Components of deferred tax assets and liabilities
Table 27.3 – Components of deferred tax assets and liabilities
As at December 31, / Years ended December 31,
Investments
Deferred acquisition costs
Property and equipment
Intangible assets
Other assets
Losses available for carry forward
Financing costs
Net claims liabilities
Accrued liabilities
DB pension plans
Other liabilities
Net deferred tax asset (liability) / expense (benefit)
Balance sheet
Asset (liability)
Comprehensive income
Expense (benefit)
2022
2021
2022
2021
194
56
48
(856)
-
211
38
12
415
(17)
(13)
88
(70)
64
37
(862)
2
197
54
100
336
32
(4)
(114)
(255)
8
(15)
(33)
2
(13)
19
87
(63)
49
9
(205)
(2)
(7)
1
(50)
(3)
26
(12)
67
(40)
66
(1)
45
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, 2022 and 2021, no deferred tax liability has been recognized on the temporary
differences of $614 million ($493 million as at December 31, 2021) associated with investments in subsidiaries and associates.
27.4 Movement in the net deferred tax asset (liability)
Table 27.4 – Movement in the net deferred tax asset (liability)
Years ended December 31,
Balance, beginning of year
Business combinations and other acquisitions
Income tax benefit (expense):
Recognized in net income
Recognized in OCI
Recognized in equity
Exchange rate differences and other
Net deferred tax asset (liability), end of year
Recognized in:
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset (liability)
2022
(114)
(17)
22
183
16
(2)
88
782
(694)
88
2021
(100)
(21)
7
(52)
53
(1)
(114)
584
(698)
(114)
As a result of the RSA acquisition, the Company has recognized $440 million of deferred tax assets during the year-ended December
31, 2021, which was included in the acquired net assets of RSA. Refer to Note 5 – Business combinations and disposals for
more details.
66
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
27.5 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, 2022 and 2021.
Table 27.5 – Unused tax losses and tax credits
As at December 31,
Total Recognized
Expiry date
Total Recognized
Expiry date
2022
2021
Unused net operating losses:
US
Canada
UK
Ireland
Other jurisdictions
Unused tax credits:
US
Canada
Unused allowable capital losses:
Canada
Ireland
UK
160
327
2,964
540
117
28
6
1
1
2,102
2024-2036
160
321
2037-2042
120 No expiry date
188 No expiry date
12 No expiry date
28
-
2030-2036
2038-2041
- No expiry date
- No expiry date
- No 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
n/a
- No expiry date
- No expiry date
- No expiry date
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 Canada, 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 $358 million as at
December 31, 2022 ($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.
27.6 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.
27.7 Dividend received deduction
During the fiscal years 2022, 2021 and 2020, the Company was reassessed by the Canada Revenue Agency, Revenu Québec and
the Alberta Tax and Revenue Administration for additional income tax and interest with respect to the 2013-2016 taxation years. The
total amount of additional income taxes and interest owed (including provincial tax and interest) is approximately $41 million for the
2013-2016 taxation years combined.
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.
INTACT FINANCIAL CORPORATION 67
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. There was no dilution effect during the years ended December 31, 2022 and 2021,
therefore, diluted EPS was the same as basic EPS.
Table 28.1 – Earnings per share
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
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
2022
Weighted-
average fair
value at
grant date
(in $)
Amount
(in millions
of $)
Number
of units
110,005
470,541
416,240
513,190
-
7
-
65
94
92
258
1,509,976
103.88
-
136.06
149.17
165.01
149.07
Number
of units
66,631
-
477,072
628,811
561,189
1,733,703
As at December 31,
Performance cycles
2017 – 2022
2019 – 2021
2020 – 2022
2021 – 2023
2022 – 2024
b) Movements in LTIP units
Table 29.2 – Movements in LTIP share units
Years ended December 31,
Outstanding, beginning of year
Awarded
Net change in estimate of units outstanding
Units settled
Outstanding, end of year
2022
2,424
60
2,364
175.6
13.46
2021
2,067
53
2,014
162.4
12.40
2021
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
-
192
2022
(in units)
1,509,976
438,495
384,801
(599,569)
2021
(in units)
1,420,075
432,618
151,290
(494,007)
1,733,703
1,509,976
c)
LTIP expense recognized in Net income
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
Years ended December 31,
Cash-settled plans
Equity-settled plans
68
INTACT FINANCIAL CORPORATION
2022
29
100
129
2021
29
47
76
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
Years ended December 31,
Outstanding, beginning of year
Accrued
Awarded and vested
Forfeited
Outstanding, end of year
2022
(in units)
113,728
115,925
(111,690)
(3,326)
2021
(in units)
123,114
115,625
(122,386)
(2,625)
114,637
113,728
b) ESPP expense recognized in Net income
The ESPP is accounted for as an equity-settled plan. For the year ended December 31, 2022, the ESPP expense was $19 million
($17 million – December 31, 2021).
29.3 Deferred share unit
The DSU is accounted for as a cash-settled plan. For the year ended December 31, 2022, the expense was $7 million ($1 million –
December 31, 2021). The DSU provision amounted to $26 million as at December 31, 2022 ($19 million as at December 31, 2021).
29.4 Executive stock option plan
In 2021, the Company established an ESOP for certain key executive employees under which, from time-to-time, stock options and
SARs may be granted
As at December 31, 2022 and 2021, 1,430,181 common shares were reserved for issuance under the ESOP.
During the year ended December 31, 2022, no stock options and SARs were granted (830,166 stock options – as at June 1, 2021).
Fair value of ESOP at grant date
a)
The fair value of the stock options granted in 2021, 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
Grant date fair value
Exercise price1
Share price at the date of grant
Expected life2
Risk-free interest rate
Expected volatility3
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 maturity date of the options outstanding is June 1, 2031.
3 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.
b) ESOP expense recognized in Net income
The ESOP is accounted for as an equity-settled plan. For the year ended December 31, 2022, the ESOP expense was $4 million
($2 million – December 31, 2021).
INTACT FINANCIAL CORPORATION 69
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)
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
2022
112
66
46
32
2021
81
53
28
22
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 recognized in Retained earnings.
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 the UK
DB pension plans
The plans were closed to new entrants in 2002 and subsequently closed to future accruals in 2017. 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.
The plans are managed through trusts with independent trustees responsible for safeguarding the interests of all members. The plan funds
are legally separated from the Company. The trustees meet regularly with Company management to discuss the funding position and any
proposed changes to the plans. The plans are regulated by The Pensions Regulator in UK.
b) Employee future benefits in Canada
DB pension plans
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 separated 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.
70
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Other post-employment benefits and other post-retirement benefits
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.
30.2 Funded status
DB pension plans are recognized on the Consolidated balance sheet as an asset when plans are in a surplus position, or as a liability,
when plans are in a deficit position. This classification is determined on a plan-by-plan basis.
Table 30.1 – DB pension plan assets (liabilities) by country
As at December 31,
DB obligation1
Fair value of plan assets
Other net surplus remeasurement2
Net DB asset (liability)
Recognized in:
Other assets – plans in a surplus position
(Table 18.1)
Other liabilities – plans in a deficit position
and unfunded plans (Table 18.2)
UK&I
(8,939)
9,480
(180)
361
368
(7)
361
2022
Canada
(2,898)
3,040
(8)
134
Pension plans
Total
UK&I
(11,837)
12,520
(188)
(14,830)
16,094
(435)
495
829
2021
Canada
(3,739)
3,736
(24)
(27)
Total
(18,569)
19,830
(459)
802
303
(169)
134
671
(176)
495
838
(9)
829
189
1,027
(216)
(27)
(225)
802
Funded status – funded plans
106%
109%
107%
109%
106%
108%
1 The weighted average duration of the DB obligation for the UK plans was 13.6 years (17.6 years as at December 31, 2021) and of the Canada plans
was 14.3 years as at December 31, 2022 (18.0 years as at December 31, 2021).
2 Includes a 35% authorized surplus payments charge related to UK DB pension plans as it does not fall within the meaning of IAS 12, and the impact of
the asset ceiling related to certain Canadian DB pension plans.
Funding and contributions to DB pension plans
The funding valuations of the UK plans, which determine the level of cash contributions payable into the plans and which must be agreed
between the Trustees and the Company, are typically based on a prudent assessment of future experience with the discount rate reflecting
a prudent expectation of returns based on actual investment strategy. This differs from IAS 19, which requires that future benefit cash flows
are projected on the basis of best-estimate assumptions and discounted in line with high-quality corporate bond yields. The Trustees’ funding
assumptions are updated only every three years, following completion of the triennial funding valuations.
Each plan is subject to triennial valuations, which are used to determine the future funding, including funding to eliminate any funding deficit.
The effective date of the most recent valuations of the main UK plans was March 31, 2021. The next required funding valuation will be as
at March 31, 2024.
At the most recent funding valuation, the main UK plans had an aggregate funding deficit of $227 million (£138 million), equivalent to
a funding level of 98%. The Company and the Trustees have agreed on funding plans to eliminate the funding deficits by 2025. In
addition, the funding commitments agreed in 2020 were reaffirmed, which included:
• Continuation of current funding arrangements of approximately $123 million (£75 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 latest actuarial valuations for the Canadian DB pension plans were performed as at December 31, 2021. The Company’s liquidity
risk with regards to these pension plans is not significant, as inflows from contributions and buy-in insurance contracts 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.
INTACT FINANCIAL CORPORATION 71
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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. 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. 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.
Based on the latest projections of the financial position of all its plans, total cash contributions by the Company are expected to be
approximately $186 million in 2023 including $123 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 and decisions taken by the Company to use or not use
surplus or letters of credit or to take contribution holiday as permitted by legislation. The Company is also expected to meet the cost
of eligible administrative expenses through the pension funds.
30.3 Movement in the DB obligation and fair value of plan assets
The DB obligation is based on the present value of expected benefit payment cash flows to plan members over their expected lifetime.
Table 30.2 – Movement in the DB obligation and fair value of plan assets
Year ended December 31, 2022
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
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
Pension plans
DB obligation
Fair value of
plan assets
Other net
Surplus
Remeasure-
ment
Net DB asset
(liability)
(18,569)
(87)
(361)
-
(448)
5,980
191
(336)
41
-
-
5,876
(43)
-
636
711
(11,837)
19,830
-
384
(20)
364
-
-
-
-
(6,503)
-
(6,503)
43
228
(636)
(806)
12,520
(459)
-
-
-
-
-
-
-
-
-
238
238
-
-
-
33
(188)
802
(87)
23
(20)
(84)
5,980
191
(336)
41
(6,503)
238
(389)
-
228
-
(62)
495
72
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Year ended December 31, 2021
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
30.4 Net actuarial gains (losses) recognized in OCI
Table 30.3 – Net actuarial gains (losses) recognized in OCI
Years ended December 31,
Pension plans (Table 30.2)
Other post-retirement benefits
Pension plans
DB obligation
Fair value of
plan assets
Other net
Surplus
Remeasure-
ment
Net DB asset
(liability)
(3,151)
(15,139)
(91)
(244)
-
(335)
83
(157)
(245)
(81)
-
-
(400)
(37)
-
456
37
(18,569)
2,891
16,100
-
248
(13)
235
-
-
-
-
856
-
856
37
206
(456)
(39)
19,830
-
(355)
-
-
-
-
-
-
-
-
-
(104)
(104)
-
-
-
-
(459)
2022
(389)
39
(350)
(260)
606
(91)
4
(13)
(100)
83
(157)
(245)
(81)
856
(104)
352
-
206
-
(2)
802
2021
352
-
352
Actuarial gains (losses) on employee future benefits, net of other surplus remeasurement
30.5 Composition of pension plan assets
Pension plan assets are mainly composed of securities from the government and financial sectors.
Table 30.4 – Composition of fair value of pension plan assets by quoted and unquoted
As at December 31, 2022
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
Pension plans
Canada
Total % of total
3
2,094
17%
Total
quoted
2,055
Total
unquoted
39
826
614
1,440
1,021
805
(9)
-
-
(220)
3,040
-
3,040
7,452
3,529
10,981
1,064 8
842
(39)
690
453
(220)
15,865
(3,345)
12,520
60%
28%
88%
8%
7%
-%
6%
3%
(2)%
127%
(27)%
100%
7,452
2,125
9,577
-
616
-
2
-
-
12,250
-
12,250
-
1,404
1,404
1,064
226
(39)
688
453
(220)
3,615
(3,345)
270
UK&I
2,091
6,626
2,915
9,541
43
37
(30)
690
453
-
12,825
(3,345)
9,480
INTACT FINANCIAL CORPORATION 73
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
As at December 31, 2021
Cash and cash equivalents
Debt securities
Government
Non-government
Debt securities
Annuity buy-in insurance contracts
Common shares
Derivative financial instruments
Investment property
Other
Securities sold under repurchase agreements
Total investments
Value of asset and longevity swaps
Total assets
Pension plans
Canada
Total % of total
Total
quoted
Total
unquoted
21
168
1%
168
-
1,154
781
1,935
793
1,220
37
-
-
(270)
3,736
-
3,736
12,467
7,035
19,502
839
2,240
1,838
1,126
606
(270)
26,049
(6,219)
19,830
63%
35%
98%
4%
11%
9%
6%
3%
(1)%
131%
(31)%
100%
12,467
4,775
17,242
-
1,779
-
2
-
-
19,191
-
19,191
-
2,260
2,260
839
461
1,838
1,124
606
(270)
6,858
(6,219)
639
UK&I
147
11,313
6,254
17,567
46
1,020
1,801
1,126
606
-
22,313
(6,219)
16,094
Annuity buy-in insurance contracts
During the year ended December 31, 2022, the Company purchased qualifying annuity buy-in insurance contracts totalling
$422 million ($808 million for the year ended December 31, 2021) on behalf of certain Canadian DB pension plans, as part of its de-
risking strategy. The resulting actuarial loss of $35 million ($26 million – December 31, 2021) 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.
Asset and longevity swaps
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 $5,102 million (£3,117
million) which was offset by swaps held by the pension funds of $3,345 million (£2,044 million) as at December 31, 2022. 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, 2022, the total value of the arrangement, including government debt measured at prices quoted in an
active market was $1,756 million (£1,073 million).
74
INTACT FINANCIAL CORPORATION
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 measured by the Company’s independent actuaries 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 its long-term nature, the DB obligation is highly sensitive to changes in some of the assumptions. Assumptions are reviewed
at each reporting date. During the year ended December 31, 2022, there have been significant fluctuations in the financial markets
including an increase in yields on fixed income and an increase in actual and expected short-term inflation.
a) Assumptions used and sensitivity analysis
Table 30.5 – Key weighted-average assumptions used in measuring the Company’s pension plans
As at December 31,
To determine the DB obligation:
Discount rate
Rate of increase in future compensation:
Next 3 years
Beyond 3 years
Rate of inflation (CPI)1
Rate of inflation (RPI)
Rate of increase in pensions2
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 pensions2
2022
2021
UK&I
Canada
UK&I
Canada
4.86%
5.27%
1.84%
3.25%
n/a
n/a
2.46%
3.11%
2.96%
3.44%
3.32%
2.32%
n/a
n/a
n/a
n/a
2.71%
3.35%
3.14%
2.75%
3.07%
2.07%
n/a
n/a
2022
2021
UK&I
Canada
UK&I
Canada
n/a
1.84%
n/a
n/a
2.71%
3.35%
3.14%
3.28%
2.89%
2.75%
3.07%
2.07%
n/a
n/a
n/a
1.94%
n/a
n/a
2.69%
3.35%
3.09%
2.84%
2.29%
2.75%
2.55%
1.75%
n/a
n/a
1 6.51% for 2023, 5.00% for 2024, 3.00% for 2025, and 2.32% per year thereafter for Canada.
2 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%.
The following table presents the assumptions regarding future mortality. The current life expectancies underlying the DB obligation
and benefit expenses in the DB plans are as follows.
Table 30.6 – Future mortality assumptions
As at December 31,
Life expectancy (in years) for pensioners at the age of 65:
Male
Female
2022
2021
UK&I
Canada
UK&I
Canada
22.2
23.8
22.8
24.3
22.4
23.8
22.6
24.6
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 2021 tables with a long-
term improvement rate of 1.25%. For the year ending 31 December 2022, reductions in future mortality rates have been assumed to
slow down temporarily as a result of COVID-19.
INTACT FINANCIAL CORPORATION 75
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 management expectation for the next 2 years, and on
inflation and long-term expectations of wage salary increase beyond 2 years. Assumptions regarding life expectancy for participants
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”), adjusted based on the results of a mortality experience study conducted in 2022.
The following table presents the sensitivity analysis of the main DB obligation to key assumptions.
Table 30.7 – Sensitivity of the DB obligation to key assumptions
As at December 31,
Discount rate
Discount rate
Rate of increase in future compensation
Rate of increase in future compensation
Rate of inflation
Rate of inflation
Life expectancy
Life expectancy
Change
+1%
-1%
+1%
-1%
+1%
-1%
+ One year
- One year
2022
2021
UK&I
Canada
UK&I
Canada
(1,037)
1,284
-
-
746
(715)
267
(270)
(357)
477
92
(78)
59
(54)
61
n/a
(2,220)
2,880
-
-
1,562
(1,490)
556
(556)
(578)
769
153
(133)
98
(89)
95
(95)
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
DB pension plans 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 obligation; and
• Unanticipated future changes in mortality patterns leading to an increase in the DB obligation.
The DB obligation and the service cost are sensitive to the assumptions made about the discount rate, which is based on estimates
of market yields of highly rated corporate bonds and also to salary growth levels, inflation and life expectancy.
a) UK DB pension plans
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.
In addition, the plans have significant hedging strategies in place, including the use of interest rate, inflation rate and longevity swaps,
The plans use a range of physical assets and derivative instruments to protect against adverse movements in interest rates and
inflation. In the case of interest rates, these provide protection against falls in rates which increase the value of a plan’s liabilities.
However, when interest rates rise, the plans are required to post collateral against the derivatives in order to maintain the same level
of interest rate protection.
76
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The UK pension plan’s liquidity position is closely monitored with a well-developed liquidity management plan to ensure that sufficient
liquidity is available to meet any collateral calls. As at December 31, 2022, the UK pension plans are estimated to have sufficient
immediately available liquidity to meet further rises in interest rates of more than 4%. The UK pension plans also hold other assets
that could be liquidated within a week if needed.
b) Canadian DB pension plans
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 plans (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 limits.
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 10% of the cost of its total assets (except for securities that are issued or guaranteed by the Government of Canada or
by a province of Canada). 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 and 2022. These contracts effectively
removed all market and demographic risks associated with over 90% of the retiree liabilities in the Company’s Canadian registered
pension plans.
The Company also establishes asset allocation limits to ensure sufficient diversification (refer to 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, adjusted to reflect the relative
size of each. 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. The interest rate hedge
ratio was 79% as at December 31, 2022 (73% as at December 31, 2021).
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, 2022,
most of the inflation-linked liabilities related to retirees were covered by the annuity buy-in insurance contracts acquired in 2021 and
2022. As at December 31, 2022, of the remaining pension plan assets excluding the annuities, 24% were invested in Government of
Canada Real Return Bonds (25% as at December 31, 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.
INTACT FINANCIAL CORPORATION 77
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
The Company 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. The
underwriting results of Canadian Northern Shield Insurance Company and British Columbia auto lines were excluded from operating
performance.
• 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
Developments LTD.
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. Effective January 1, 2022 and until its
disposal on July 7, 2022, the underwriting results of the Middle East were excluded from operating performance.
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. Effective January 1, 2022, the
underwriting results from the Public Entities business were excluded from operating performance.
• Distribution income includes the operating results from the Company’s wholly owned subsidiary, Highland Insurance Solutions
since its acquisition on August 1, 2022 (Refer to Note 5 – Business combinations and disposals).
Corporate and Other (“Corporate” or “Corp.”) consists of investment management, treasury and capital management activities,
corporate reinsurance, including certain internal and external agreements as well as other corporate activities. Effective January 1,
2022, and until its disposal on July 7, 2022, the investment results of the Middle East were excluded from Corporate.
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 recognized in the Consolidated statements of income is presented in
Table 31.2 – Reconciliation of segment information to amounts recognized in the Consolidated statements of income.
78
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 31.1 – Segment operating performance1
Years ended December 31,
CAN UK&I
US
Corp.
Total
CAN UK&I
US
Corp. Total
2022
2021
Operating income
Operating NEP
Operating investment income
Other
Segment operating revenues
Operating net claims
Operating net underwriting expenses
Operating investment expenses
Share of profit from invest. in
13,369
-
500
4,127
-
-
13,869
4,127
(8,109) (2,658)
(3,993) (1,346)
-
-
1,871
-
37
1,908
(932)
(718)
-
17 19,384 11,450
-
962
389
545
962
8
2,319
-
-
987 20,891 11,839
2,319
1 (11,698) (6,259) (1,381)
(786)
(3) (6,060) (3,666)
-
-
(35)
(35)
1,652
-
-
1,652
(910)
(625)
-
622 16,043
740
740
421
32
1,394 17,204
(423) (8,973)
(206) (5,283)
(34)
(34)
associates & JV
Total finance costs
Other
PTOI
169
(12)
(239)
-
-
-
-
-
(30)
-
(177)
(142)
169
(189)
(411)
146
(9)
(173)
-
-
-
-
-
-
-
(153)
(57)
146
(162)
(230)
1,685
123
228
631
2,667
1,878
152
117
521
2,668
Operating income tax expense
Net income (loss) attributable to NCI
Non-operating component of NCI
Preferred share dividends
NOI attributable to common
shareholders
PTOI is comprised of:
Underwriting income
Operating net investment income
Distribution income
Total finance costs
Other operating income (expense)
PTOI
(501)
4
(24)
(60)
2,086
(577)
(21)
-
(53)
2,017
1,267
-
430
(12)
-
1,685
123
-
-
-
-
123
221
-
7
-
-
228
15
927
-
(177)
(134)
1,626
927
437
(189)
(134)
1,525
-
362
(9)
-
631
2,667
1,878
152
-
-
-
-
152
117
-
-
-
-
117
(7) 1,787
706
362
(162)
(25)
706
-
(153)
(25)
521
2,668
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 recognized in the Consolidated statements of income
Years ended December 31,
Segment operating revenues (Table 31.1)
Add: other underwriting revenues
Add: NEP from exited lines
Add: non-operating investment income from exited lines
Revenues, as reported
Segment PTOI (Table 31.1)
Non-operating items1:
Net gains (losses)
Gain on bargain purchase
Gain on sale of business (Note 19)
Positive (negative) impact of MYA on underwriting
Amortization of intangible assets recognized in business combinations
Acquisition, integration and restructuring costs
Non-operating pension expense
Income (loss) 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
2022
20,891
312
408
4
21,615
2,667
(429)
-
421
1,127
(254)
(353)
(56)
(145)
-
2,978
(36)
2,942
2021
17,204
236
195
-
17,635
2,668
249
204
-
226
(199)
(429)
(64)
(53)
(4)
2,598
(30)
2,568
1 See Section 37 – Non-operating results of the Company’s MD&A for the definition of related non-operating measures.
INTACT FINANCIAL CORPORATION 79
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.3 Selected segment assets and liabilities
Table 31.3 – Selected segment assets and liabilities
2022
2021
As at December 31,
Investments (Note 6)
Net claims liabilities (Table 11.1)
CAN UK&I
-
5,235
-
13,758
31.4 Information by geographic areas
Table 31.4 – Geographic areas
As at December 31,
Canada
UK&I
US
US
Corp.
Total
- 35,601 35,601
-
5 20,866 13,663
CAN UK&I
-
5,234
1,868
US
Corp. Total
- 36,680 36,680
227 20,793
1,669
Revenues
2022
14,850
4,690
2,075
21,615
2021
12,973
2,915
1,747
17,635
Total assets
2022
37,029
19,490
8,440
64,959
2021
37,899
21,102
7,348
66,349
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 31.5 – Significant operating subsidiaries by geographic areas
Operations
Canada
US
UK&I
Legal entities
IB Reinsurance Inc.
Intact Insurance Company
Intact Public Entities Inc.
Jevco Insurance Company
• Belair Insurance Company Inc.
• Brokerlink Inc.
• Canadian Northern Shield Insurance Company
• Equisure Financial Network Inc.
•
•
•
•
• Novex Insurance Company
• Atlantic Specialty Insurance Company
•
•
• Al Alamiya for Cooperative Insurance Company1
• Al Ahlia Insurance Company SAOG1
• Royal & Sun Alliance Insurance Limited
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
The Guarantee Company of North America USA
•
• Highland Insurance Solutions
• Royal & Sun Alliance Insurance (Middle East) BSC (c)1
• RSA Luxembourg S.A.
• RSA Insurance Ireland DAC
1 Until their disposal on July 7, 2022, refer to Note 5 Business combinations and disposals for details.
80
INTACT FINANCIAL CORPORATION
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
Years ended December 31,
Adjustments for non-cash items
Net losses (gains) (Note 25)
Gain on bargain purchase (Note 5)
Gain on sale of businesses (Notes 5 & 19)
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
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.
2022
2021
429
-
(421)
174
389
120
84
152
(103)
102
926
(228)
(15)
133
277
(259)
(90)
(47)
385
49
205
(249)
(204)
-
148
313
124
100
95
(87)
(49)
191
(206)
(18)
783
434
(90)
(16)
125
130
28
1,170
INTACT FINANCIAL CORPORATION 81
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 (expenses) recognized in:
Net earned premiums
Net claims incurred
Net investment income
Underwriting expenses
Assets and liabilities recognized in:
Assets
Reinsurance assets
Deferred acquisition costs
Loans and other receivables
Liabilities
Claims liabilities
Unearned premiums
Other payables and other liabilities
Commissions payable
2022
2021
9
(41)
5
(380)
-
160
117
-
-
153
143
2
(31)
5
(454)
83
161
122
9
2
154
149
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, which includes the entirety of the Executive Officers of the Company as well as the Board of Directors.
Table 33.2 – Aggregate compensation of key management personnel
Years ended December 31,
Compensation1
Share-based payments
2022
2021
28
29
57
21
25
46
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 Canadian pension plans’
Master Trust in return for investment advisory fees charged to the pension plans, for a total of $6 million for the year ended
December 31, 2022 ($8 million – December 31, 2021).
The Company made contributions to the Canadian and UK pension plans of $228 million for the year ended December 31, 2022
($206 million – December 31, 2021).
82
INTACT FINANCIAL CORPORATION
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 – Financial liabilities by contractual
maturity and Note 18.2 – Other liabilities for details on lease liabilities.
a) Other non-cancellable commitments
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, 2022
Less than 1 year
From 1 to 5 years
Over 5 years
Leases1
Investments2
Other
93
206
181
480
854
-
-
854
202
217
6
425
Total
1,149
423
187
1,759
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
Years ended December 31,
Interest expense on lease liabilities
Operational costs and variable lease payment expenses
34.2 Contingencies
2022
15
71
2021
16
58
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.
INTACT FINANCIAL CORPORATION 83
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 Québec, which uses a
“use and file” mechanism. Automobile DPW covered by a “file and approve” rate setting mechanism totalled $4.9 billion, or 75% of
the Canadian Company’s automobile DPW for the year ended December 31, 2022 ($4.4 billion, or 74% – December 31, 2021).
35.2 US
Most states have insurance laws generally 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, inadequate or 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. Certain lines of property and casualty insurance may be exempt from
these requirements.
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.
84
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 36 – Standards issued but not yet effective
36.1 Insurance contracts and financial instruments
Glossary of new abbreviations
CSM
ECL
FVTOCI
GMM
Contractual service margin
Expected credit loss
Fair value through other comprehensive income
General measurement model
LIC
LRC
PAA
SPPI
Liabilities for incurred claims
Liability for remaining coverage
Premium allocation approach
Solely payments of principal and interest
The Company will adopt IFRS 17 – Insurance Contracts (“IFRS 17”) in conjunction with IFRS 9 – Financial instruments (“IFRS 9”) on
the required effective date of January 1, 2023, which replace IFRS 4 – Insurance Contracts (“IFRS 4”) and IAS 39 – Financial
instruments: recognition and measurement (“IAS 39”), respectively. While IFRS 9 was effective for annual periods beginning on or
after January 1, 2018, IFRS 4 allows a temporary exemption to delay the implementation of IFRS 9 until IFRS 17 is applied.
IFRS 17 will be applied retrospectively as at January 1, 2022 to each group of insurance contracts, as a result comparative information
will be restated. If full retrospective application is impracticable, the modified retrospective approach or the fair value approach could
be applied. The Company will apply the modified retrospective approach for past business combinations, except for the most recent
acquisition of RSA on June 1, 2021. The Company will recognize any IFRS 9 measurement differences by adjusting its Consolidated
balance sheet on January 1, 2023, as a result comparative information will not be restated.
Financial impact
IFRS 17
Upon transition to IFRS 17 on January 1, 2022, the Company’s Equity attributable to shareholders will be positively impacted by
approximately $420 million (after-tax) mainly due to the deferral of additional indirect costs which were previously expensed
as incurred.
The impact on the measurement of Claims liabilities will be limited due to the short tail nature of the Company’s business and the
current accounting practices of risk margin and discounting which are fairly aligned with IFRS 17. IFRS 17 will result in presentation
reclasses as insurance related assets and liabilities will be presented together on a single line, and reinsurance related assets and
liabilities will be presented together on a single line. The following table summarizes the preliminary impact of IFRS 17 on the
Company’s Consolidated balance sheet on transition.
Table 36.1 – Preliminary impact of IFRS 17 on the Consolidated balance sheet
As at January 1, 2022
Total assets
Total liabilities
Equity attributable to shareholders
Equity attributable to non-controlling interests
IFRS 4
66,349
(49,566)
(15,674)
(1,109)
Impact of
IFRS 17
(10,985)
11,405
(420)
-
IFRS 17
55,364
(38,161)
(16,094)
(1,109)
In Canada, where the Company is subject to OSFI’s MCT guidelines, the transition to IFRS 17 will have a neutral impact on its
regulatory capital position. In other jurisdictions where the Company is regulated, the regulatory capital calculations are independent
of IFRS 17. The new standard will not change the Company’s overall capital framework and how it manages its capital.
IFRS 9
Upon transition to IFRS 9 on January 1, 2023, the Company’s Equity attributable to shareholders will be negatively impacted by
approximately $2 million which corresponds to the ECL calculated on its investment portfolio measured at amortized cost.
IFRS 9 will also result in reclassifications from AOCI to retained earnings as follows:
• Certain equity instruments currently classified as AFS will be classified as FVTPL which will result in increased volatility in
Net income subsequently;
• The FVTPL designation of some fixed income instruments will change on transition date; and
• The ECL calculated on instruments at fair value currently in OCI will be recycled to the Net income.
As at January 1, 2023, the Company will reclassify approximately $385 million (after-tax) of net unrealized losses from AOCI to
Retained earnings.
INTACT FINANCIAL CORPORATION 85
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The table below summarizes the preliminary classification and measurement impacts of IFRS 9 on the Company’s investments on
transition:
Table 36.2 – Preliminary impact of the adoption of IFRS 9 on the classification and measurement of investments
Measurement category
Carrying amount
As at January 1, 2023,
Cash and cash equivalent
Debt securities
Preferred shares
Common shares
Loans
IAS 39
IFRS 9
Amortized cost Amortized cost
AFS
FVTPL
AFS
AFS
AFS
FVTPL
FVTOCI
FVTPL1
FVTPL
FVTOCI2
n/a
FVTPL
Amortized cost Amortized cost3
IAS 39
1,010
18,256
8,839
1,421
-
3,159
1,439
1,001
35,125
Impact of
IFRS 9
-
(5,461)
5,461
(1,024)
1,024
(3,159)
3,159
(2)
(2)
IFRS 9
1,010
12,795
14,300
397
1,024
-
4,598
999
35,123
1 Includes $1,880 million of debt securities that will be classified at FVTPL as they will not pass the SPPI test.
2 On transition to IFRS 9, the Company will make an irrevocable election to designate these preferred shares at FVTOCI with fair value changes presented
directly and permanently in OCI.
3 The IFRS 9 carrying amount includes an ECL impact of $2 million.
There will be no significant impact on the Company’s other financial assets and liabilities on transition to IFRS 9. In addition,
Investment property is in the scope of IAS 40 – Investment property and therefore is not in the scope of IFRS 9.
a)
The following summarizes the Company’s main accounting policies under IFRS 17 compared to IFRS 4:
Insurance contracts
Topic
Description
Impact
Scope and
separating
components
Similar to IFRS 4, under IFRS 17 the Company will evaluate if
contracts are in scope of the insurance contract standard and will
separate its components if necessary.
Insurance contracts 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.
The Company issues insurance contracts in the normal course of
business (direct business). The Company also holds reinsurance
contracts (ceded business), under which it is compensated by other
entities for claims arising from one or more insurance contracts
issued by the Company.
IFRS 17 introduces a new concept of aggregating insurance and
reinsurance contracts into portfolios and groups for measurement
purposes. Portfolios are comprised of contracts with similar risks
which are managed together. The Company divides its direct and
ceded business into portfolios. Management uses judgement in
considering the main geographic areas, lines of businesses,
distribution channels and legal entities in which it operates as the
relevant drivers for establishing its various portfolios. Portfolios are
then divided into groups of contracts based on expected profitability.
Groups do not contain contracts issued more than one year apart
since they are further subdivided into annual cohorts. This is the level
at which the Company will apply the requirements of IFRS 17.
Level of
aggregation of
insurance
contracts
The Company will continue to assess
its insurance and reinsurance contracts
to determine whether they contain
components which must be accounted
for under an IFRS other than the
insurance contract standard.
The Company’s insurance policies do
not include any components that
require separation.
Portfolios of insurance contracts issued
that are assets and those that are
liabilities and portfolios of reinsurance
contracts held that are assets and those
that are liabilities will be presented
separately in the Consolidated balance
sheets, resulting in presentation
changes when compared to IFRS 4 as
described below in the Presentation
and disclosures section.
86
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Topic
Description
Impact
Measurement
models
Onerous
contracts
Discount rate
IFRS 17 introduces a new concept of GMM for the recognition and
measurement of insurance contracts. Entities also have the option to
use a simplified measurement model (the PAA), for contracts that
have a coverage period of one year or less or if the resulting LRC,
which represents insurance coverage to be provided after the
reporting period, is not expected to materially differ from the LRC
measured using the GMM. The accounting under the PAA is similar
to current approach under IFRS 4.
The GMM is required for a limited number of contracts including
acquired claims from the RSA acquisition as described below and
retroactive reinsurance contracts the Company holds to cover
adverse development of existing claims. The GMM requires
measuring insurance and reinsurance contracts using updated
estimates and assumptions that reflect the timing of cash flows and
any uncertainty relating to insurance and reinsurance contracts.
Under this model the LRC is the sum of discounted future cash flows,
risk adjustment and CSM representing the unearned profit the
Company will recognize as it provides service under the insurance
contracts in the group.
IFRS 17 requires the identification of groups of onerous contracts at
a more granular level than the liability adequacy test performed
under IFRS 4. Under the PAA, the Company assumes that no
contracts in the portfolio are potentially onerous at initial recognition
unless facts and circumstances indicate otherwise. The Company
has developed a methodology for identifying indicators of possible
onerous contracts, which includes internal management information
on planning information, forecast information and historic experience.
The Company has developed models for measuring potential
onerous contract losses.
For onerous contracts, a loss component determined based on
estimated fulfilment cash flows is included in the LRC when
insurance contracts are issued with a loss recognized immediately in
Net income, resulting in early recognition compared to IFRS 4. The
loss component will be reversed to Net income over the coverage
period, therefore offsetting incurred claims. The loss component is
measured on a gross basis but may be mitigated by a loss recovery
component if the contracts are covered by reinsurance.
IFRS 17 requires estimates of future cash flows to be discounted to
reflect the time value of money and financial risk that reflects the
characteristics of the liabilities and the duration of each portfolio. The
Company has established discount yield curves using risk-free rates
adjusted to reflect the appropriate illiquidity characteristics of the
applicable insurance contracts. The LIC and the LRC of contracts
measured under the GMM approach will be discounted using this
methodology. The Company will elect to not discount the LRC of
contracts measured under the PAA approach.
Under IFRS 4, claims liabilities are discounted using a rate that
reflects the estimated market yield of the underlying assets backing
these claims liabilities at the reporting date.
The Company does not have any
significant contracts with coverage
periods that are greater than one year
and has developed a methodology for
determining whether those contracts
are eligible to apply the PAA. Based on
its models the PAA will be applicable to
all the insurance and reinsurance
contracts except in limited
circumstances where the GMM is
required as described below.
Onerous contracts will not have a
significant impact on transition to
IFRS 17 and will have a limited impact
on an ongoing basis given the
Company’s group of contracts are
generally expected to be profitable.
The changes in discount methodology
will not have a significant impact on
transition and on an ongoing basis.
There is an accounting policy choice
under IFRS 17 to record the MYA on
LIC in either Net income or OCI. The
Company will elect to record the MYA in
Net income, in line with how it is
currently presented. The change in the
LIC from the MYA and the impact of
discount unwinding will be recognized
in insurance finance income and
expenses outside of underwriting
performance, whereas under IFRS 4 it
is recognized in Net claims incurred.
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Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Topic
Description
Impact
Risk
adjustment
The measurement of insurance contract liabilities includes a risk
adjustment which will replace the risk margin under IFRS 4. The
IFRS 4 risk margin reflects the inherent uncertainty in the net
discounted claim liabilities estimates, whereas the IFRS 17 risk
adjustment is the compensation required for bearing the uncertainty
that arises from non-financial risk.
Like the risk margin, the risk adjustment
includes the benefit of diversification,
therefore the two methodologies are
fairly aligned.
Contracts
acquired in a
business
combination
in the scope of
IFRS 3
IFRS 17 introduces a new complexity for acquired contracts, to the
extent that it is practicable for past acquisitions, insurance and
reinsurance contracts acquired in a business combination in the
scope of IFRS 3 are treated as if they had been issued by the
Company at the date of their acquisition. Consequently, the acquired
LIC is reclassified as a LRC in the acquirer’s Consolidated balance
sheets.
At their acquisition date, the Company will identify groups of
contracts acquired based on the level of aggregation requirements of
IFRS 17 and determine the CSM using the consideration received for
the contracts as a proxy for the premiums received and exclude any
consideration for other assets and liabilities acquired in the same
transaction. If the acquired contracts are onerous, the difference
between the consideration received and fulfilment cash flows will be
recognised as part of the goodwill or gain on bargain purchase.
After the acquisition date, under the GMM the LRC including any
CSM will be released into insurance revenue over the service
coverage which is the expected claims settlement pattern. As a
result, there will be a gross presentation in Net income of insurance
service revenue representing the LRC recognized over the claims
settlement pattern and expenses representing the settlement of
claims. In addition, favourable development of the acquired claims’
fulfilment cash flows will be recognized within the CSM, to the extent
there was no prior loss component, and the updated CSM will be
released into revenue over the expected claims settlements.
Under IFRS 17, direct premiums written will no longer be presented
in the Consolidated statements of income, instead insurance
revenues on direct business will be allocated to the period and will
include:
• Premium receipts net of cancellations, promotional returns,
and sales taxes, similar to IFRS 4; and
• Other insurance revenue currently recognized in Other
underwriting revenues under IFRS 4. This includes fees
collected from policyholders in connection with the costs
incurred for the Company’s yearly billing plans and fees
received for the administration of other policies.
Insurance
revenue
Insurance
service
expenses
Insurance service expenses will include fulfilment and acquisition
cash flows which are costs directly attributable to insurance contracts
and are comprised of both direct costs and an allocation of fixed and
variable overhead costs. It will be composed of the following:
•
Incurred claims and other insurance service expenses,
which are fulfilment cash flows and include direct incurred
claims and non-acquisition costs directly related to fulfilling
insurance contracts;
• Amortization of insurance acquisition cash flows (see
•
below); and
Losses and reversal of losses on onerous contracts
(see above).
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INTACT FINANCIAL CORPORATION
The Company used judgment to
determine if the retrospective transition
approach will be practicable for prior
acquisitions.
The Company will elect to use the
modified retrospective approach for
acquisitions prior to RSA, as a result,
the acquired LIC for these acquisitions
will not be reclassified as a LRC in the
Company’s Consolidated balance
sheets.
It will apply the retrospective transition
approach to the RSA acquisition only.
For contracts measured under the PAA,
the allocation will be based on the
passage of time, which is usually
12 months, similar to IFRS 4.
For contracts measured under the
GMM, the allocation will be based on
the service coverage provided which is
the expected claims settlement pattern
for acquired claims.
IFRS 17 will result in presentation
changes to IFRS 4’s Underwriting
expenses since expenses will be
classified either as insurance
acquisition cash flows and fulfilment
cash flows within insurance service
expenses or as other expenses when
they are not directly attributable to
insurance contracts. As a result, a
portion of expenses currently classified
as Underwriting expenses under IFRS 4
will be presented as other expenses
under IFRS 17.
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Topic
Description
Impact
Insurance acquisition cash flows
Insurance acquisition cash flows are costs directly attributable to
selling or underwriting a portfolio of insurance contracts and are
presented in the LRC. These cash flows include direct costs such as
commissions and premium taxes and indirect costs such as salaries,
rent and technology costs. Under IFRS 17, the PAA provides the
option to expense insurance acquisition cash flows as they are
incurred. The Company will elect to amortize these costs on a
straight-line basis over the coverage period of the related groups.
Insurance acquisition cash flows are
similar to IFRS 4’s deferred acquisition
costs except they also include a portion
of indirect costs, as a result, the
Company will capitalize additional costs
under IFRS 17.
The impact on Equity attributable to
shareholders on transition is mostly due
to the deferral of additional indirect costs.
Overall, the impact will not be significant
in proportion to Equity and will have
limited impact on an ongoing basis.
Presentation
and
disclosures
IFRS 17 introduces significant changes to the disclosure and presentation of insurance items in the financial
statements including:
• Changes in presentation in the Consolidated balance sheets 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;
• Changes in presentation in the Consolidated statements of income where direct insurance results will
be presented separately from reinsurance results;
• Underwriting performance will be presented in the Consolidated statements of income under
insurance service result which will be composed of:
o
o
o
Insurance revenue which includes revenues related to direct business as described above;
Insurance service expenses which include expenses related to direct business as described
above; and
net income (expenses) from reinsurance contracts held which includes revenues and
expenses related to ceded business.
•
Insurance service results will be presented without the impact of discount unwinding and MYA which
will be shown separately under insurance finance income and expenses; and
• Extensive disclosures are required on the recognized amounts from insurance contracts and the
nature and extent of risks arising from these contracts.
b)
Financial instruments
The following summarizes the Company’s main accounting policies under IFRS 9 compared to IAS 39:
Classification and measurement
Business model
Under IFRS 9, the classification of debt instruments is dependent on the business model under which the Company manages its
investments as well as their cash flow characteristics.
The Company’s primary business model will be held-to-collect and sell because debt securities (except non-rated investments that
are not liquid) are held to collect contractual cash flows and sold when required to fund insurance contract liabilities. These financial
assets will be classified as FVTOCI with changes in fair value recognized in OCI (when unrealized) or in Net gains (losses) when
realized or impaired.
A portion of the debt securities used to back insurance liabilities will also be voluntarily designated as FVTPL to reduce an accounting
mismatch caused by fluctuations in fair values of the underlying insurance liabilities due to changes in discount rates. Changes in fair
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Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
value will be recognized in Net gains (losses). This designation will be done on an individual basis on January 1, 2023 and will
be irrevocable.
The Company’s cash and cash equivalents, non-rated private investments and loans and receivables will fall under the held-to-collect
business model where the emphasis is to collect contractual cash flows. These financial assets will be classified as amortized cost.
Common shares and a small portion of the preferred shares will be classified at FVTPL. For the majority of preferred shares, the
Company will elect at initial recognition to present fair value changes directly and permanently in OCI.
Solely payments of principal and interest assessment
Financial assets which are held within held-to-collect and sell and held to collect business models are assessed to evaluate if their
contractual cash flows are comprised of SPPI. Contractual cash flows generally meet SPPI criteria if such cash flows reflect
compensation for basic credit risk and customary returns from a debt instrument which also includes time value for money. Where the
contractual terms introduce exposure to risk or variability of cash flows that are inconsistent with a basic lending arrangement, the
related financial asset will be classified and measured at FVTPL.
Impairment model - Expected credit loss
The new impairment model applies only to financial assets classified as amortized cost and debt securities classified as FVTOCI. The
ECL model is forward looking, resulting in a loss allowance being recognized earlier as described below rather than on an incurred
credit losses basis under IAS 39.
Staging
Debt securities
Stage 1 (12 months ECL) Credit risk of the financial instrument is low (investment grade), or credit risk has not increased
significantly since initial recognition (performing)
Stage 2 (Lifetime ECL)
Credit risk has increased significantly since inception (underperforming) but the financial instrument
is not credit impaired
Stage 3 (Lifetime ECL)
Financial instrument is credit impaired
IFRS 9 provides a simplification where an entity may assume that the criterion for recognizing lifetime ECL is not met if the credit risk
on the financial instrument is low (“investment grade”) at the reporting date. The Company will use the low credit risk simplification as
approximatively 95% of the debt securities portfolio consists of investment-grade financial instruments with a quoted market price.
The ECL model will not have a significant impact, due to the high quality of the Company’s investment portfolio.
Hedge accounting
IFRS 9 includes an accounting policy choice to continue applying existing hedge accounting rules under IAS 39 until the Dynamic
Risk Management (macro hedging) project is finalized, which the Company will elect to apply.
36.2 Disclosure of accounting policies (amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB amended IAS 1 – Presentation of Financial Statements (“IAS 1”) and IFRS Practice Statement 2 – Making
Materiality Judgements to require the Company to disclose its material accounting policy information rather than its significant
accounting policies. Further amendments to IAS 1 were made to explain how an entity can identify a material accounting policy. The
amendments will be effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted.
The Company is currently assessing the impact of these amendments on its accounting policies disclosure.
36.3 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 will 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.
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INTACT FINANCIAL CORPORATION
Table of contents
Glossary
Glossary
This glossary includes GAAP and non-GAAP 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 – Include costs related to an acquisition, such as
severance, 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.
Integration costs incurred in connection with an acquired business
do not represent an ongoing operating expense of the business.
Restructuring and other costs – Include non-recurring reorganization
costs not related to an acquisition and expenses related to the
implementation of significant new accounting standards.
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.
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).
Average investments
Mid-month average fair value of investments portfolio held during
the reporting period.
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. 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; IFC aggregate threshold: $15 million
(combined impact across all segments of $15 million or more, effective
January 1, 2023). 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.
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.
1 These are non-GAAP financial measures, which do not have any standardized meaning prescribed by GAAP and are unlikely to be comparable to similar measures presented by other companies.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Glossary
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 168% MCT. The CAL
varies by legal Canadian entities. The CAL is 200% RBC for regulated
insurance entities in the U.S. and 120% SCR for those in the UK&I.
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.
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.
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, managing general agents
(MGAs) and other supply chain-related businesses.
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.
Income (loss) from exited lines
Includes the underwiting results and net investment income from
exited lines.
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.
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.
Market-based yield
Annualized total pre-tax investment income (before expenses),
divided by the weighted-average investments.
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.
Market yield effect (MYE)
Realized and unrealized gains and losses on our FVTPL bonds are
expected to offset MYA, which are both reflected in Non-operating
results. The net result of these two items is referred to as the Market
Yield Effect.
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.
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.
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.
1 These are non-GAAP financial measures, which do not have any standardized meaning prescribed by GAAP and are unlikely to be comparable to similar measures presented by other companies.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Glossary
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 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.
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 investment income1
Investment income less Investment expenses, as reported under IFRS,
excluding the impact of 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.
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.
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, Operating net
investment income, Distribution income, Total finance costs and Other
operating income (expense).
1 These are non-GAAP financial measures, which do not have any standardized meaning prescribed by GAAP and are unlikely to be comparable to similar measures presented by other companies.
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INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Glossary
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 U.S.), and Solvency
capital requirement (as defined by the Prudential Regulation Authority
in the U.K.).
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 equity1 (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.
Total capital margin
Total capital margin includes capital in excess of the internal CALs
for insurance entities in Canadian, U.S., U.K. 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 underwriting results of the U.S. Commercial’s Business
Programs, Architects and Engineers (effective in Q4-2017), the
Healthcare business (effective July 1, 2019), Public Entities (effective
in Q1-2022), B.C. auto exit (effective in Q4-2020), CNS operations
(wind-down since Q3-2021), legacy exits of the UK&I portfolio, as
well as the operating results of the Middle East (sold in 2022).
Severity (of claims)
Average cost of a claim calculated by dividing the total cost of claims
by the total number of claims.
WANSO
Weighted-average number of common shares outstanding on a daily
basis during a specific period.
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 U.K.
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.
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.
1 These are non-GAAP financial measures, which do not have any standardized meaning prescribed by GAAP and are unlikely to be comparable to similar measures presented by other companies.
245
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Financial History
Five-Year Financial History
This table contains non-GAAP and other financial measures. Refer to Section 36 – Non-GAAP and other financial measures of the MD&A
for the year ended December 31, 2022 for further details.
Consolidated performance
Operating direct premiums written1
Direct premiums written
Operating net earned premiums1
Net earned premiums
Underwriting income (loss)1
Operating net investment income1
Distribution income1
Net operating income1
Non-operating results1
Effective income tax rate1
Net income
2022
2021
2020
2019
2018
3-year
average
5-year
average
10-year
average
21,053
22,655
19,384
19,792
1,626
927
437
2,146
311
18.7%
2,420
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
16,792
17,597
15,549
15,757
1,547
737
358
1,896
(98)
20.0%
1,863
14,303
14,787
13,315
13,462
1,116
665
292
1,486
(140)
18.5%
1,410
11,119
11,341
10,481
10,540
773
550
205
1,099
(120)
18.0%
1,030
Operating combined ratio1
91.6%
88.8%
89.1%
95.4%
95.1%
89.8%
92.0%
93.2%
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 equity1
11.88
13.46
80.33
4.00
14.3%
19.5%
16.5%
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%
11.40
11.02
73.82
3.57
16.8%
18.5%
15.4%
9.22
8.59
64.83
3.31
15.0%
15.7%
13.2%
7.23
6.67
52.64
2.72
14.4%
14.4%
12.7%
1 These are non-GAAP and other financial measures. See glossary on page 242 for definitions.
246
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Financial History
2022
2021
2020
2019
2018
3-year
average
5-year
average
10-year
average
14,037
13,369
90.5%
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%
–
–
–
–
–
–
–
–
–
12,092
11,484
88.4%
10,855
10,312
91.3%
4,893
4,838
88.8%
3,107
2,932
85.2%
4,092
3,714
90.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4,499
4,412
92.7%
2,769
2,616
87.3%
3,587
3,284
92.4%
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%
2,052
1,702
92.0%
1,859
1,583
92.8%
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
9,364
8,947
92.8%
4,045
3,979
94.8%
2,322
2,187
89.6%
2,996
2,781
92.4%
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
5,514
5,502
92.9%
3,632
3,428
90.1%
4,891
4,439
87.9%
4,671
4,127
97.0%
1,779
1,728
106.2%
2,892
2,399
90.4%
2,345
1,871
88.2%
–
–
–
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%
64,959
2,379
21.2%
66,349
2,891
23.0%
35,119
2,729
24.1%
32,292
1,222
21.3%
28,461
1,333
22.0%
55,476
2,666
22.8%
45,436
2,111
22.3%
33,955
1,452
20.6%
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)2
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal lines (in Canadian dollars)2
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Commercial lines (in Canadian dollars)2
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
1 These are non-GAAP and other financial measures. See glossary on page 242 for definitions.
2 2021 only includes Q3 & Q4 results.
247
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Financial History
Three-Year Quarterly Financial History
This table contains non-GAAP and other financial measures. Refer to Section 36 – Non-GAAP and other financial measures of the MD&A
for the year ended December 31, 2022 for further details.
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2022
2021
2020
Consolidated performance
Operating direct premiums written1
Direct premiums written
Operating net earned premiums1
Net earned premiums
Underwriting income (loss)1
Operating net investment income1
Distribution income1
Net operating income1
Non-operating gains (losses)1
Effective income tax rate1
Net income
5,125
5,528
5,004
5,054
427
279
93
601
(236)
5,443
5,796
4,880
4,945
362
232
111
488
(150)
5,017
5,318
4,931
5,003
600
220
77
679
17
12.9% 20.4% 16.2% 27.9% 20.1%
701
1,184
4,678
5,093
4,742
4,891
396
205
92
488
–
5,807
6,238
4,758
4,902
441
211
141
569
697
419
447
370
5,447
5,719
4,871
4,950
426
191
105
519
(265)
24.8%
300
4,297
4,414
3,482
3,508
464
154
118
515
6
17.0%
573
2,522
2,543
2,759
2,777
297
141
62
357
172
18.9%
514
2,872
2,928
2,879
2,899
415
143
72
467
(125)
20.4%
378
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
Operating combined ratio1
91.5% 92.6% 90.7% 91.7% 87.8%
91.3%
86.7%
89.3%
85.6%
87.1%
89.5%
94.3%
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 equity1
3.34
2.26
80.33
1.00
2.70
2.02
78.90
1.00
3.14
6.64
80.86
1.00
2.70
2.53
82.20
1.00
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
14.3% 15.0% 15.4% 16.6% 17.8%
19.5% 22.5% 21.9% 18.8% 21.0%
16.5% 19.1% 18.5% 14.9% 17.0%
18.3%
20.2%
16.5%
19.8%
22.9%
19.6%
19.0%
20.1%
17.6%
18.4%
15.0%
12.8%
16.9%
13.4%
11.5%
15.6%
12.0%
10.1%
14.0%
11.0%
9.2%
1 These are non-GAAP and other financial measures. See glossary on page 242 for definitions.
248
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Financial History
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2022
2021
2020
3,283
4,047
3,417
3,296
3,403
3,312
88.7% 92.7% 90.6% 90.1% 84.4%
2,909
3,253
3,664
3,401
1,234
1,608
1,255
1,390
1,387
1,367
95.8% 93.0% 89.8% 93.0% 87.5%
1,536
1,404
1,115
1,344
874
872
831
838
76.9% 98.4% 97.6% 87.6% 79.5%
1,008
851
1,034
867
716
838
1,218
1,431
1,288
1,068
1,094
1,144
89.0% 87.9% 86.0% 88.5% 84.3%
1,094
1,130
1,078
1,071
1,144
1,048
1,274
1,157
1,145
1,017
104.0% 93.5% 91.3% 98.9% 93.0%
1,299
1,062
1,071
1,000
426
420
517
516
120.8% 105.5% 88.3% 110.4% 96.1%
424
431
479
461
450
416
718
628
757
629
92.8% 85.0% 93.6% 90.0% 90.4%
820
601
733
586
621
584
564
551
460
485
85.1% 90.5% 91.1% 86.8% 92.5%
603
424
470
421
708
475
3,564
3,280
89.2%
3,051
2,492
85.0%
2,125
2,382
88.2%
2,471
2,446
84.0%
2,724
2,479
86.0%
2,896
2,330
89.0%
2,125
2,378
93.3%
1,544
1,404
85.1%
1,251
1,048
82.4%
814
983
93.4%
984
1,087
82.6%
1,214
1,081
84.9%
1,242
990
84.7%
882
1,029
94.6%
965
828
93.5%
790
637
83.3%
518
621
77.4%
623
630
73.2%
719
620
83.7%
753
601
88.6%
491
593
81.8%
1,055
1,048
91.2%
1,010
807
89.6%
793
778
90.1%
864
729
95.3%
791
778
89.4%
901
739
752
756
95.1% 100.7%
1,264
1,174
93.9%
582
538
97.9%
682
636
90.5%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
619
415
92.8%
512
379
90.3%
397
373
96.3%
401
432
92.0%
540
383
94.5%
486
381
396
386
93.2% 100.1%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
734
608
90.7%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
Operating direct premiums written1
Operating net earned premiums1
Operating combined ratio1
Personal lines (in Canadian dollars)
Operating direct
premiums written1
Operating net earned premiums1
Operating combined ratio1
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
66,349
63,922
64,959
2,891
2,379
2,479
21.2% 22.5% 20.3% 23.9% 23.0%
64,459
2,490
65,354
2,567
1 These are non-GAAP and other financial measures. See glossary on page 242 for definitions.
66,173
2,693
23.9%
65,491
2,558
24.1%
35,264
3,008
22.5%
35,119
2,729
24.1%
34,110
1,871
21.2%
33,184
1,707
22.1%
32,229
1,485
24.1%
249
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 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, 2023, 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 Ltd. (“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, economic and political environments and industry conditions. 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 36 – Non-GAAP and other financial measures of our annual MD&A for further details.
Disclaimer:
Intact Financial Corporation, Belair Insurance Company Inc., Brokerlink Inc., RSA Insurance Group Limited, On Side Restoration Services Ltd.
and their respective affiliates own and/or use a number of trademarks in connection with their business operations. These trademarks
(both registered and unregistered) are the exclusive property of Intact Financial Corporation, Belair Insurance Company Inc., Brokerlink Inc.,
RSA Insurance Group Limited, On Side Restoration Services Ltd. and/or their respective affiliates. ©2023 Intact Financial Corporation.
All rights reserved.
250
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
Shareholder and Corporate
Information
Shareholder and Corporate Information
Credit rating
Financial strength ratings
IFC’s principal Canadian P&C insurance subsidiaries
RSA Canadian entities
Intact Insurance Specialty Solutions (U.S. regulated entities)
RSA Insurance Group UK&I
Senior unsecured debt ratings
IFC
Intact Insurance Specialty Solutions (U.S. regulated entities)
RSA Insurance Group Limited
A.M. Best
DBRS
Moody’s
Fitch
A+
not rated
A+
A
a-
a-
a+
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-
DBRS has assigned a rating of “Pfd-2” with a Positive 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 and special meeting of the shareholders
Date: Thursday, May 11, 2023
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/497222487.
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, 2023
Q2 – August 3, 2023
Q3 – November 8, 2023
Q4 – February 14, 2024
Investor inquiries
Shubha Khan, Vice President, Investor Relations
1 416 341-1464, ext. 41004
shubha.khan@intact.net
Media inquiries
David Barrett, Director, Media
1 416 227-7905
media@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, 2022
Sept. 15, 2022
June 15, 2022
Mar. 15, 2022
Dec. 15, 2021
Sept. 15, 2021
June 15, 2021
Mar. 15, 2021
Dec. 15, 2020
Sept. 15, 2020
June 15, 2020
Mar. 16, 2020
Dec. 30, 2022
Sept. 30, 2022
June 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sept. 30, 2021
June 30, 2021
Mar. 31, 2021
Dec. 31, 2020
Sept. 30, 2020
June 30, 2020
Mar. 31, 2020
$1.00
$1.00
$1.00
$1.00
$0.91
$0.83
$0.83
$0.83
$0.83
$0.83
$0.83
$0.83
2022 YE
2022 Q4
2022 Q3
2022 Q2
2022 Q1
2021 YE
2021 Q4
2021 Q3
2021 Q2
2021 Q1
2020 YE
2020 Q4
2020 Q3
2020 Q2
2020 Q1
High
$209.57
$209.57
$205.40
$189.95
$190.48
$178.28
$173.03
$178.28
$172.24
$157.36
$157.74
$157.74
$147.81
$143.10
$157.65
Low
$159.89
$187.60
$177.74
$170.82
$159.89
$140.50
$158.00
$164.82
$154.29
$140.50
$104.81
$131.94
$128.61
$117.54
$104.81
Close
$194.91
$194.91
$195.49
$181.56
$184.72
$164.42
$164.42
$167.48
$168.41
$154.00
$150.72
$150.72
$142.58
$129.21
$121.63
TSX Volume
95,875,296
21,809,080
24,335,540
22,949,676
26,781,000
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
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.
251
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 Table of contents
“The best part of
what we do is working
through the process with a
customer from start to finish
to help get them back to
where they need to be.”
Jordan T.,
Field Claims Representative
Insurance is about people, not things.
“To know that
your insurance
company is truly
standing behind you
in times of need is
remarkable.”
Joe,
Prestige Claims
customer
252
INTACT FINANCIAL CORPORATION ANNUAL REPORT 2022 “I wanted to bring
to your attention what
can only be described as an
absolute gem of a customer
service experience. This was
the most pleasant, empathetic,
and personalized experience
I’ve ever had.”
belairdirect customer
“Intact’s values
are different. From
interactions with other
employees to dealing with our
clients and opposing parties,
I am very proud to work for a
company that lives these
values every day.”
Christina C.,
Senior Legal Counsel
Media Inquiries
Investor inquiries
See our full suite
of reports at
intactfc.com
David Barrett
Director, Media
+1.416.227.7905
media@intact.net
Shubha Khan
Vice President, Investor Relations
+1.416.341.1464 ext. 41004
shubha.khan@intact.net
700 University Ave., Suite 1500
Toronto, Ontario M5G 0A1
ir@intact.net
www.intactfc.com
Make it
Intact
LEADING
PROVIDER
of P&C insurance in Canada, the
UK and Ireland, with a leading
Global Specialty Lines platform
Consistently
OUTPERFORMS
INDUSTRY
due to disciplined underwriting,
scale advantage and in-house
claims expertise
TRACK RECORD
of strong capital generation
and annual dividend increases
Proven
INDUSTRY
CONSOLIDATOR &
INTEGRATOR
FINANCIAL
STRENGTH
reinforced by
prudent risk management
2022 Kincentric
BEST EMPLOYER
in Canada and the US