Intact Financial Corporation
2023 Annual Report
About us
We’re motivated by our purpose
We are here to help people, businesses and society prosper in good times and be resilient in bad times.
We’re driven by 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
Respect
Be kind
See diversity
as a strength
Stand up for
what is right
Be inclusive and
collaborate
Customer-
driven
Listen to our
customers
Make it easy,
find solutions
Deliver second-to-
none experiences
Excellence
Generosity
Act with discipline
and drive to
outperform
Embrace change,
improve every day
Celebrate success,
yet remain humble
Help others
Protect the
environment
Make our
communities
more resilient
We’re guided by our core belief
We are a purpose-driven company based on values and a belief that insurance is about people, not things.
Table of contents
What we do
What we aim to achieve
Our strategic roadmap
Our strong track record of
financial performance
CEO’s letter
Chairman’s letter
Our board and leadership
4
6
8
10
14
28
30
MD&A and Financial Statements
Financial history
Forward-looking statements
Shareholder and corporate
information
32
272
276
277
What we do
Intact is the largest provider of Property
& Casualty insurance in Canada, a leading
specialty lines insurer with international
expertise and a leader in commercial lines
in the U.K. and Ireland.
①
① Largest provider of P&C
insurance in Canada
② Leading Global Specialty
Lines platform
③ U.K. & Ireland leading
commercial lines insurer
③
②
We have a global team of more than
30,000 employees delivering best-in-class
service through over 350 offices.
Our business has grown organically and through
acquisitions to over $22 billion of total annual
operating Direct Premiums Written.1
Our P&C segments2
Our lines of business2
13%
20%
67%
46%
28%
26%
Canada U.K.&I U.S.
Personal lines Commercial lines Specialty lines
1 See Section 31 — Non-GAAP and other financial measures of the MD&A for more details.
2 Based on 2023 operating DPW on a continuing pro-forma basis. This reflects the impact of the DLG brokered commercial lines acquisition for a full year and excludes U.K. personal
lines DPW, as this is a better indication of our future annual premiums. See Section 31—Non-GAAP and other financial measures of the MD&A for more details.
[ 4 ]
2023 Intact Financial Corporation Annual Report Over the last decade, our total annual operating
Direct Premiums Written1 tripled in size to over
$22 billion in 2023. Our strong growth trajectory
has been supported by successful acquisitions
while surpassing our financial objectives. As
a result, our market cap has consistently
increased over time and reached a record
high of $36 billion in 2023.
DLG
~$36B
Market Cap
RSA
GCNA
OneBeacon
$22.4B
DPW
Innovassur
Canadian
Direct
Metro
General
JEVCO
AXA Canada
$4.5B
Market Cap
$4.3B
DPW
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1 See Section 31 —Non-GAAP and other financial measures of the MD&A for more details.
[ 5 ]
2023 Intact Financial Corporation Annual Report What we aim
to achieve
Our objectives
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
[ 6 ]
2023 Intact Financial Corporation Annual Report 2023 strategic highlights
Our customers are our ADVOCATES
Our people are ENGAGED
Our company is one of the
MOST RESPECTED
82%
of brokers in Canada,
the U.S. and the U.K. value
our specialized expertise
Representing the
communities we serve:
40%
of Vice President and
higher positions at IFC
are held by women
14%
of Vice President and higher
positions in Canada and U.S.
are held by employees who
identify as Black People and
People of Colour1
57%
of stakeholders in Canada
believe that Intact is a leader
in helping build resilient
communities4
71%
of our personal lines
customers who had
a transaction with us
are our advocates
2023 Kincentric
Best Employer:
• in Canada for the
8th consecutive year
• in the U.S. for the
5th consecutive year
Progression toward Best
Employer in U.K.&I:
A six-point improvement
this year on the employee
engagement survey
10-year CAGR
12%
with a Net Operating Income
Per Share2 of $11.70
10-year average Return on
Equity2,3 outperformance of
6.8 points
1 Excluding On Side Restoration due to data unavailability.
2 See Section 31 —Non-GAAP and other financial measures of the MD&A for more details.
3 Intact’s ROE corresponds to an adjusted return on equity (AROE), which is more comparable to the industry.
4 Intact’s Resilience Barometer measures our progress on achieving our target of “3 out of 4 stakeholders recognize us as leaders in building resilient communities” through feedback
from key stakeholders. More information on “our company is one of the most respected” objective can be found in the annual Social Impact and ESG Report.
[ 7 ]
2023 Intact Financial Corporation Annual Report Our strategic
roadmap
Our strategy
Expand leadership
position in Canada
Strengthen leading
position in U.K. & Ireland
Build a Specialty
Lines leader
Leading customer
experience
3 out of 4 customers
digitally engaged
Leading broker &
customer experience
Expand broker
distribution
Specialized customer
value proposition
Expand
distribution
10%
NOIPS
growth
annually
over time
Scale in
distribution
Further
consolidation
in Canada
Optimize
underwriting & claims
for outperformance
Responsive and
agile technology
and operations
Profitable &
growing mix
of verticals
Consolidate
fragmented
market
Outperform industry
combined ratio by 5 pts
Low 90s combined ratio
Sub-90s combined ratio
Transform our competitive advantages & solidify outperformance
Global leader in leveraging data
and AI for pricing and risk selection
Deep Claims expertise & strong
supply chain network
Strong capital & investment
management expertise
Invest in our people
Be a best employer
Be a destination for top talent & experts
Enable our people to thrive
Invest in our community
Leverage our strengths to win on climate
Build resilient communities
*Based on a weighted-average ROE benchmark of leading P&C insurers in Canada, the U.S. and the U.K.
500 bps
Annual ROE
Outperformance*
[ 8 ]
2023 Intact Financial Corporation Annual Report Highlights of our
strategic progress
Expand our leadership position in Canada
Strengthen our leading position in U.K. & Ireland
Build a Specialty Lines leader
Transform our competitive advantages
and solidify outperformance
Invest in our people
Invest in our community
1 See Section 31 —Non-GAAP and other financial measures of the MD&A for more details.
belairdirect, our direct-to-consumer
arm, and BrokerLink, our wholly
owned business, strengthened
our scale in distribution with over
$6.5 billion
of total annual DPW1
Optimized our footprint to become
one of the largest
commercial lines writers in the U.K. with
the acquisition of Direct Line’s brokered
Commercial Lines operations
Over $6 billion
in DPW1 generated as we expand our
capabilities across our global platform
and progress on pricing sophistication
93 new AI models
deployed by our Data Lab experts,
guided by an outperformance mindset
and a strong data and AI governance
Almost a quarter
of our employees moved to a new role
and progressed their career, enabling our
people to grow with us, while deepening
the global talent pool
$26.4 million
in funding for climate adaptation since
2010, supporting applied research and
adaptation actions that help build resilient
communities where we operate
[ 9 ]
2023 Intact Financial Corporation Annual Report Our strong track
record of financial
performance
[ 10 ]
2023 Intact Financial Corporation Annual Report Net Operating Income Per Share1 over time
NOIPS
15
12
9
6
3
0
12%
10-year CAGR
$11.70
This was driven by solid organic growth,
healthy underwriting margins, as well as
strong investment and distribution results,
altogether bolstered by contributions
from our numerous acquisitions. We
remain confident in our ability to grow
NOIPS by 10% annually, over time.
2014
2015
2016
2017
2018
2019
2020
2021
20222
20232
ROE1,3 outperformance
ROE outperformance versus the industry
15
12
9
6
3
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
20232
Average ROE over the past decade
of 14.6% exceeding industry ROE
by a yearly average of 6.8 points.4
Estimated ROE outperformance in
2023 was impacted by our strategic
restructuring and derisking activities
during the year. We remain confident
in our ability to deliver 500 bps of ROE
outperformance every year, driven by our
underwriting, claims, as well as capital
and investment management activities.
Total shareholder return5
TSX 60
IFC
300
250
200
150
100
50
0
274%
121%
10-year Annualized Total
Shareholder Return
14%
IFC
8%
TSX 60
We had 19 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.
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1 See Section 31 —Non-GAAP and other financial measures of the MD&A for more details.
2 IFRS 17 basis.
3 Intact’s ROE corresponds to an adjusted return on equity (AROE), which is more comparable to the industry.
4 2023 ROE outperformance is estimated at 260 basis points and includes estimated U.K. industry ROE. Final 2023 outperformance results will be available in Q2-2024.
5 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.
[ 11 ]
2023 Intact Financial Corporation Annual Report 2023 financial highlights
Our performance is driven by our sophisticated pricing, disciplined
underwriting, in-house claims expertise and strong supply chain
network. Despite the unusually challenging operating environment,
we reported solid results, a testament to the resilience of our
operations as well as our ability to deliver strong profitable growth.
We reported solid operating performance in 2023
Underwriting
$22.4B
Operating DPW1
Investment
$1,346M
Operating Net
Investment Income1
94.2%
Combined Ratio1,2
3.94%
Market-based yield
Distribution
$467M
Distribution Income1
BrokerLink closed
20 acquisitions,
representing
$375M
DPW
$11.70
NOIPS1
$6.99
EPS
Our financial position continues to be strong3
22.4%
Adjusted Debt-to-Total
Capital Ratio1
$2.7B
Total Capital Margin1
Credit Ratings
A+
A.M. Best
AA
DBRS
AA-
Fitch
A1
Moody’s
$81.71
BVPS1
14.2%
OROE1
11.7%
AROE1
8.8%
ROE1
1 See Section 31 —Non-GAAP and other financial measures of the MD&A for more details.
2 Combined ratio is presented on an undiscounted basis, in line with how we manage our business.
3 As of December 31, 2023.
[ 12 ]
2023 Intact Financial Corporation Annual Report [ 13 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
With the convergence of wars, affordability of life
and natural disasters, it’s been a tough year for
society. Given we exist to help people, businesses
and society prosper in good times and be resilient
in bad times, it has been a demanding year for
us. Despite the adversity, our teams rose to the
challenge as this environment energizes us and
plays to our strengths. Resilience is for us the name
of the game. And ours was on full display this year.
Globally 2023 was the hottest year on
record and it brought the impacts of
climate change and extreme weather into
sharp focus. In North America, wildfire
smoke enveloped major cities and
Canada had the worst wildfire season
on record. We paid out more than
one billion dollars in natural disaster
claims to get our customers back on
track. While this was twice the level
expected, we saw strong underlying
financial performance across most
business lines and markets. Our strength
enabled us to deliver for our customers,
brokers and employees while investing
in climate resilience in our communities.
Financially, we have clearly shown we
can withstand extreme events with an
operating ROE of 14% and a total capital
margin of $2.7 billion.
But resilience is not enough to out-
perform. That’s why we accelerated
investments in our long-term strategy
while being opportunistic with the
conditions at hand. Strategic advances
were solid with large technology
deployments globally, digital
accelerations and big distribution
advances in Canada, AI deployments
bolstering segmentation, and an
aggressive transformation in the U.K.
We also took advantage of a high
inflationary and high interest rate
environment to de-risk the organization
and acquire a competitor in the U.K.
All this progress is made possible by
our people, who deliver on our purpose
for customers. They are our greatest
strength. In 2023 we refreshed our
People Strategy and continue to invest in
their engagement. Despite consistently
achieving Best Employer status in North
America and a six-point lift in the U.K.&I,
we are not satisfied. They deserve more.
And while we are winning as a business,
we also want to be helping the
communities where we live and work.
Our social impact plan and our Climate
Strategy are in full swing, as you’ll read
in our Social Impact Report.
When all is said and done, we are not
happy with our financial performance
and Total Shareholder Return (TSR) this
year. But we have a clear sense that the
organization is stronger today than at the
start of 2023.
Charles Brindamour
Chief Executive Officer
[ 14 ]
2023 Intact Financial Corporation Annual Report 2023 financial performance
We delivered strong financial results for the full year despite
elevated catastrophe losses. Net operating income per share
of $11.70 and an operating ROE of 14.2% were driven by topline
growth, healthy underwriting margins, as well as solid results
from our investment and distribution activities. Against this
backdrop, we are pleased to raise dividends to common
shareholders for the nineteenth consecutive year.
Our overall combined ratio of 94.2%
reflected our continued underwriting
discipline and ongoing profitability
actions amid elevated weather-related
losses and inflation pressures. Personal
Auto performance was consistent with
our sub-95 combined ratio guidance,
underlying performance in Personal
Property was sub-90, and Commercial
Lines delivered a low 90s combined ratio
or better across all geographies. This
is a solid foundation on which to grow
our business.
Top line momentum was also strong
across our platform with organic growth
rising to 8% in the back half of the year.
Hard market conditions continue to
provide a significant tailwind for a majority
of our businesses, and our priority is to
leverage this environment to accelerate
profitable organic growth.
With interest rates rising for much of
2023, we increased portfolio turnover
to capture higher reinvestment yields,
driving growth in investment income of
45%. We have good visibility on continued
growth in investment income for 2024,
in part because market yields remain
above the book yield of our portfolio.
Distribution income grew by 6%,
reflecting a slower pace of brokerage
acquisitions in the first half of the year,
which picked up significantly in the
latter half. The M&A pipeline remains
strong for 2024, as distribution income
provides a strong, dependable and
diversified source of earnings. We are
on course for at least 10% growth in the
next year, further supporting our ROE
outperformance objectives.
At year end, our balance sheet remained
strong with $2.7 billion of total capital
margin and solid regulated capital ratios
in all jurisdictions. Book Value Per Share
was largely stable year over year as
strong underlying earnings allowed us
to fully recover the dilutive impact of
actions to de-risk the U.K. pension plan
earlier this year. With mid-teens ROE
contribution and supportive capital
markets, we expect to deliver solid book
value growth going forward.
We are proud of our track record over the
past decade, with NOIPS compounding
at 12% annually and ROE outperformance
of 680 basis points on average. We also
delivered annualized total shareholder
return of 14% during this period,
outperforming the TSX 60 benchmark
by 600 basis points.
CEO’s letter
With the tremendous
progress we made on
strategic initiatives,
supportive market
conditions and a strong
balance sheet, we
entered 2024 with a
lot of momentum. We
remain well positioned
to grow Net Operating
Income Per Share by
10% annually over time,
and to outperform the
industry ROE by 500
basis points each year.
[ 15 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
Demonstrating resilience
in a changing world
We are building Intact by taking an outside-in approach when
it comes to strategy. In other words, we explore deep societal
trends impacting our customers and employees and ask
ourselves how we can use our competitive advantages to make
the most of this changing environment. That’s offence. Then our
ability to build a resilient organization is also directly connected to
our understanding of these trends. That’s defence. And sustained
outperformance requires not only a future-proof strategy, but
also disciplined, high-quality execution. Our past performance is
testament to our relentless pursuit of all three. As we look ahead
to 2024, we are well positioned amid the key trends we observe,
some which I have outlined below.
We believe consumers will determine
who wins, and their expectations
are changing fast. Our challenge is
to keep pace, and technology will
be a key driver of success. They are
increasingly connected and demanding
great interactions which include digital
components. Nearly two in three
customers believe their experiences,
from initial product exploration via digital
channels to customer service within the
same organization, lack consistency.1
Consumers are also shopping more
and trying to find value for money amid
affordability challenges. Our view is that
inflationary pressures will be stubborn.
While we remain focused on pricing for
inflation, we are also committed to using
our supply chain advantages and wide
range of offerings to enhance customer
experience and alleviate inflationary
pressure for them.
The direct consequence of consumers
embracing technology is an explosion
in data, increasing the importance
of AI techniques that can help us to
analyze it. One third of our competitive
advantage is achieved through pricing
and segmentation, so we’ve been
investing in data sources and predictive
AI techniques to expand our advantage
for more than a decade. Still, I feel
we need to move faster. About half of
companies globally use AI2 and this
will surely accelerate as data storage,
computing and training costs continue to
decline. With much of the AI stack being
democratized, the strategic importance of
proprietary data sets is being amplified.
The arrival of generative AI is another
step change in AI adoption. There is
significant — but different — power to
be harnessed through the deployment
of large language models. While we
continue investing in machine learning
and data science within our quantitative
models, we are also exploring how we
can tap into generative AI to improve
customer experience and amplify our
specialized expertise. But we must be
careful as we pilot its potential with
consumers, who increasingly expect
trust, transparency and data security.
Another consequence of the acceleration
in data and technology is the rise of
cybercrime, which is set to eclipse
US$10.5 trillion by 2025.3 On one hand,
risk is our business, so this presents
a growth market for us in commercial
and specialty lines which we’ve already
started to capitalize on. On the other
hand, we are also doubling down to
protect our own systems and data as
well as that of our customers.
Employee expectations are also
changing. They are more likely to quit
if leaders don’t measure up ethically,
The State of CX (Customer Experience) Report 2023 | Oxford Economics and Adobe Business.
1
2 The state of AI in 2023: Generative AI’s breakout year | McKinsey; The state of AI in 2022—and a half decade in review | McKinsey.
3 Cybercrime To Cost The World $10.5 Trillion Annually By 2025 (cybersecurityventures.com).
[ 16 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
↑ Michael Katchen, Co-Founder and CEO of Wealthsimple, and member of IFC’s Board of Directors, sharing his perspective about innovation
with Marie-Eve Racicot, Deputy Senior Vice President, Software Engineering, Data & Digital, at Intact Lab.
morally and socially; and elements like
core values and purpose are critical for
attraction and retention.1 Global worker
stress is also at a record high and
workplace changes have hit managers
especially hard.2 People are still adjusting
to hybrid work, and at IFC we continue to
believe that togetherness is an important
ingredient for outperformance. In addition,
workplace demographics are shifting.
In 2023, Millennials and Gen Z crossed
the threshold of being more than half our
workforce at IFC. We’ve maintained Best
Employer3 status in North America and
improved engagement by six points in the
U.K.&I, but we must do more. Our people
deliver on our purpose for customers, so
in 2023 we refreshed our People Strategy
for them. More on that below.
Finally, let’s talk about climate change,
the defining trend of the next century.
The negative impacts of major weather
events have been increasing for decades.
Average global insured losses from
natural catastrophes over the past two
years are 31% higher than over the past
ten years.4 We’ve been on the front lines
getting our customers back on track,
and we’ve managed to do so profitably.
After transforming our products, data
collected, pricing models, service models
and supply chain a decade ago, our track
record of strong profitability in our most
CAT exposed line of business shows
we can turn this headwind into an
opportunity. But the next decades won’t
look like the last one. In 2023 we began
modelling more extreme global warming
scenarios to stress test the resilience
of our products and have been reassured
that our action plans will keep us
profitable and relevant for consumers.
In our Social Impact & ESG Report we
outline our five-pillar Climate Strategy
which includes our action plan to help
society, while also winning as a business.
We need to take an all-of-society
approach and Intact has an important part
to play by sharing our learnings, expertise,
scale and resources with customers,
communities and governments.
The State of Organizations 2023 (mckinsey.com).
1
2 6 Workplace Trends Leaders Should Watch in 2024 (gallup.com).
3 Survey conducted and Best Employer status granted by Kincentric, a Spencer Stuart Company.
4 Insured losses from severe thunderstorms reach new all-time high of USD 60 billion in 2023, Swiss Re Institute estimates | Swiss Re.
[ 17 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
Our goals, our gameplan
It’s worth restating. Sustained outperformance requires not only
a future-proof strategy, but also disciplined, high-quality execution
and the agility to be opportunistic. We must be crystal clear about
WHAT we’re trying to achieve (Goals), and HOW we are going to
get there (our Game Plan or Strategic Roadmap), and we are.
We want our customers to be our
advocates, at least three out of four of
them. And we want four out of five brokers
to value our specialized expertise.
We want our people to be engaged.
This means achieving Best Employer
status in our annual engagement surveys,
and our people reflecting the diversity
of the communities we serve.
And we want to be one of the most
respected companies, not only
because of our financial success —
exceeding industry ROE by 5 points
and growing NOIPS by 10% yearly over
time — but also for our investments in
community. We want three out of four
stakeholders to recognize us as leaders
in building resilient communities, and we
want to achieve net zero by 2050, which
includes halving our operations emissions
by 2030.
And we will get there by delivering on
our Strategic Roadmap, which has
six categories of action.
Expanding our leadership
position in Canada
Our strategy in Canada has been
delivering outperformance for decades,
and there is still much more we can
achieve. In 2023, we made excellent
progress and accelerated momentum in
key strategic areas.
First Nations territory, which opened
last September.
Creating leading customer experiences
is critical to success. Increasingly,
customers want to interact digitally —
so we’re making investments in digital.
We’ve set a goal to have three out of
four customers digitally engaged with
us, and we are well on our way. In 2023,
our top-rated mobile insurance app saw
over 23 million visits. We had $282 million
in web sales, a 75% lift over the previous
year. And, with our easy-to-use self-serve
tools, nearly one in five policy transactions
is now completed online.1
Deep claims expertise and supply
chain management are key in creating
great claims experiences and containing
costs, especially during years with above
average catastrophe activity which puts
increased demands on supply chain
capacity. In 2023, nearly two-thirds of
our property claims were handled by our
Rely Network, and almost half of those
claims were handled by On Side, our
owned restoration firm which has grown
to nearly 50 locations across the country.
In auto, we’re increasingly connecting with
customers in-person and delivering faster
turn-around times through our Intact-
branded service centres, which will
reach 32 locations by early 2024. Among
them, is our first branded auto shop on
But the proof is in the Promoters.2 At
the conclusion of their claim, we survey
thousands of customers per month for
feedback about their experience. In 2023,
71% indicated that as a result of their
experience with us, they are Promoters2
of Intact.
Consolidation and scale in distribution
are also key building blocks to expanding
our leadership position, and we hit
several success milestones in 2023.
belairdirect has become our one
national brand in the direct channel,
having re-branded Johnson Insurance
and Anthony Insurance. We are also
nearing the completion of the RSA
integration — about six months ahead
of schedule — and synergies have reached
$350 million. Finally, BrokerLink hit a
milestone year closing 20 acquisitions,
growing the business by 18% and
surpassing $3.5 billion in DPW.
2024 is about keeping up the momentum,
capturing the benefits of our investments
in technology and translating that into
customer and broker satisfaction, higher
organic growth, and outperformance.
We remain on track in Canada to grow
our DPW to $20 billion by 2027, with five
points of combined ratio outperformance.
1 Across transactions available to be done online.
2 Promoters are customers who select 9 or 10 on a scale of 10 to the question “How likely are you to recommend IFC to a friend or colleague?”
[ 18 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
[ 19 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
↑ Ken Norgrove, Chief Executive Officer of RSA, U.K.&I, exchanging with employees in London.
Strengthening our
leading position in the
U.K. and Ireland
In 2023, we significantly focused the
footprint of our U.K.&I business to set it up
for sustainable outperformance. In fact,
the transformation we have navigated is
nothing short of extraordinary.
In February, we de-risked our
balance sheet by completing a
£6.5 billion pension buy-in with Pension
Insurance Corporation plc (PIC). While
maintaining security of benefits for
pensioners, the transaction improved
capital efficiency and paved the way
for new options to gear the business
toward outperformance. We then
rapidly proceeded to capture strategic
opportunities.
We exited U.K. Personal Lines, an area
where we lacked scale and the road
to outperformance was not clear. We
withdrew from Personal Lines Motor in
March, sold our Home and Pet operations
to Admiral Group plc in December, and
are running off remaining partnership
arrangements as contracts expire. Our
focus through this major period of change
is on ensuring a transition that supports
our customers, colleagues and partners.
And despite executing these significant
transactions, we made excellent progress
on our strategic roadmap. We delivered
two new IT systems; dramatically
improved our controls, protocols, and
defense against cyber-attacks; launched
our Leadership Success Factors;
strengthened leadership development
through the introduction of a Senior
Talent Program; and improved employee
engagement by 6 points.
In parallel, we bolstered our Commercial
Lines platform where the path to
outperformance is clear. In September,
we acquired the brokered Commercial
Lines business of Direct Line Insurance
Group plc, significantly strengthening
our offering and positioning us as one of
the largest players in U.K. Commercial
Lines. This is financially compelling for
shareholders, with an expected internal
rate of return above 15%.
These initiatives will accelerate our
ability to achieve outperformance in the
U.K.&I, which is now expected to deliver
a low-90s combined ratio in 2024. I am
optimistic about what the future holds
for this business.
[ 20 ]
2023 Intact Financial Corporation Annual Report
Building a specialty
solutions leader
Building on the foundation we had in
Canada, it was six years ago that we
entered U.S. Specialty Lines, believing
there was an opportunity to deploy
our strengths into a sizeable and
fragmented sector. Through organic and
inorganic growth, including meaningful
contributions from the RSA acquisition,
we have more than doubled the size of
the platform and improved profitability
to be sub-90’s. Today, our geographic
footprint gives us access to 70% of the
global specialty lines market and we
service customers in over 150 countries.
Winning in specialty requires three
things: deep technical expertise,
specialized product offerings, and
strong distribution relationships.
We have a strong bench of seasoned
talent and a leadership team averaging
25 years of underwriting experience.
We’re building on the value they bring
by providing tools that enable them to
leverage IFC’s sophisticated capabilities
in data, pricing and segmentation.
In 2023, consistent with our strategic
roadmap, we’ve linked a number of
new predictive models to our specialty
underwriting systems, enabling better
and more efficient underwriting decisions
in real time. In addition, for certain lines of
business we’ve pooled our experts into
truly global teams, accelerating the pace
of technical exchanges, mentorship and
best practice sharing.
Our product offering spans more than
20 verticals in four distinct markets.
Across those verticals, we see many
opportunities for growth. In some cases
we can export a vertical across the
markets we now operate in. In 2023 for
example, we expanded our cyber offering
to the U.K. and Europe1, and imported our
technology offering to Europe. In other
cases, we can extend our offering to
more of the distribution partners we work
↓ Our Risk Control team visiting a commercial insurance client, a manufacturer of particleboards.
Photo credit: Pierre Chamberland.
CEO’s letter
with. And given our experience, acquiring
distribution is also an option. We already
own several successful specialty MGAs
totalling more than $1 billion in DPW.
Starting new verticals is also something
we’ll consider where the opportunity is
meaningful. In 2023 we launched our
Renewable Energy vertical.
In 2022, we added a new strategic
objective: four out of five brokers
value our specialized expertise. We
did this in recognition of the important
role that brokers play, especially in
the distribution of commercial and
specialty lines insurance. By providing
brokers with the service and expertise
they expect, they will in turn be able to
deliver an outstanding experience for
our customers. As of 2023, we have
exceeded that objective in all the markets
where we operate.
We are entering 2024 with more than
$6 billion in Direct Written Premiums,
growth momentum at 9%, and an 88%
combined ratio. This is excellent progress
towards our ambition of $10 billion with
a sustained sub-90’s combined ratio by
end of the decade. I have confidence
that our current strategic roadmap will
get us there.
In 2022, we added a
new strategic objective:
4 out of 5
brokers value our
specialized expertise.
1 Through our equity partnership with Resilience, a cyber focused MGA.
2023 Intact Financial Corporation Annual Report
[ 21 ]
path to outperformance. Over time, we
will continue to deepen our expertise
and supply chain management in all the
regions where we operate.
Capital and investment management
2023 was a standout year for our capital
and investment management teams.
In addition to the tremendous activity
they supported in re-shaping the
footprint of our U.K.&I business, they
also successfully navigated a changing
economic environment to prudently
capitalize on increasing investment
yields. Investment income was up
45% year over year and 80% of our
investment strategies outperformed
their respective benchmarks. Intact
Investment Management was again
named a TOP Gun Investment Team
by Brendan Woods, scoring third
overall in Canada. Most importantly,
over the last five years our investment
portfolio outperformed our industry
peers by approximately 150 basis points
contributing to our ROE outperformance
objective.1 With a strong balance sheet,
$2.7 billion in capital margin, and a top
performing in-house team, we are well
positioned to continue outperforming and
capturing future growth opportunities.
CEO’s letter
Transforming our
competitive advantages
and solidifying
outperformance
There are three areas of expertise that
we have been investing in, because
they disproportionately contribute to
our outperformance.
Data and AI
We aim to be the best AI insurance
shop in the world. With the support of
500 people in our Data Lab in Montreal,
Toronto and Hong Kong — experts in
data science, actuarial science, machine
learning, meteorology, climate science
and geomatics — we have helped deploy
more than 370 models into production.
With a strong foundation built in personal
lines, in 2023 we began to accelerate
deployment of AI in commercial and
specialty lines. We also continue to
invest in academic partnerships and
intern programs to ensure we have
access to the best talent and the most
current knowledge.
Claims and supply chain
As outlined above, the depth of our
claims expertise and strong supply chain
network are on full display in Canada
where we have considerable scale. To
use that advantage, we have internalized
the vast majority of claims, and have
vertically integrated into the supply chain
through On Side and our branded auto
service centres. But our claims expertise
is also contributing to outperformance in
specialty lines, where dedicated experts
settle often complex and highly technical
claims using their specialized expertise.
And in the U.K.&I, the successful
deployment of a new modern claims
system will contribute as we pursue the
1 Based on five-year historical data as of 2022. 2023 outperformance will be available in Q2-2024.
[ 22 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
↑ Life at Intact: Chantal Harvey and Ashley MacNeil.
Photo credit: Michael Faubert.
Investing in our people
People are at the heart of everything we
do, and they are our greatest strength. To
continue to outperform, we must invest
in our workforce and grow our talent pool
at the pace of our business ambitions. We
now have a global team of more than
30,000 employees.
As we grow, it’s equally important that our
employees are engaged in the work they
do. Engagement leads to success. To
foster engagement, our People Strategy
has three elements — we strive to be a
best employer, to be a destination for
top talent and experts, and to enable
our people to thrive.
To be a Best Employer, we must deliver
on our Employee Promise, which is our
commitment to providing employees
with the support and opportunities that
will help them Shape the future, Win as
a team and Grow with us.
We measure engagement through
Kincentric Best Employer Surveys.
We’re proud to be named a Kincentric
Best Employer in Canada for the eighth
consecutive year and the fifth straight
year in the U.S. I’m also pleased to
share that since we introduced the
engagement survey in the U.K. and
International last year, our engagement
results have increased by six points.
That increase is even more meaningful
in the context of the significant amount
of change in our U.K. business right now.
We will strive to see further improvement
in 2024.
It is essential that we invest in being
a destination for the top talent and
specialized experts who will help
us succeed today and in the future.
[ 23 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
Thanks to our investments in leadership
capability, 77% of our manager-and-
above vacancies were filled internally
in 2023. In addition, almost a quarter of
our employees moved into a new role
progressing their careers and deepening
our talent pool. We also continued to
invest in the skillsets that will be needed
for sustained outperformance, such
as data and AI, digital and design, and
specialty underwriting.
A strong workforce also means enabling
our employees to thrive. Our employees
completed close to 545,000 training
courses in 2023, deepening their
personal and professional growth. In
addition, they told us they are getting the
support they need to succeed, rating all
aspects of manager effectiveness well
above the Kincentric Top Quartile and
in our top three scoring dimensions
across all regions.
At Intact, we value diversity and strive to
create an inclusive workplace where all
individuals feel valued, respected and
heard. We are proud to have achieved
gender parity across our leadership
roles globally and through our regional
Diversity Councils. We will continue to
invest in training and activities that will
make our environment attractive and
inclusive to employees and that reflect
the communities we serve. For example,
we now have 16 employee-led networks
to celebrate and educate about different
diversity dimensions.
Delivering on our People Strategy is
the right thing to do and it makes good
business sense. When we invest in our
people, it enables them to deliver on
Our Purpose for our customers, and
that will help us win.
↑ Photo credit: Nancy Christopher
[ 24 ]
2023 Intact Financial Corporation Annual Report Investing in our community
↑ Photo credit: Kimberly Demonte.
We aim to make a positive difference
across three areas of social impact:
climate resilience, economic resilience,
and community well-being.
When it comes to climate resilience,
Intact has been committed to helping
customers and communities adapt to
a changing climate for over a decade.
When we launched our Climate Strategy,
we committed to double down on our
efforts — because the problem is
accelerating, so our efforts need to also.
To name a few, we’ve been working with
the Intact Centre on Climate Adaptation
at the University of Waterloo for over
10 years on practical solutions to protect
communities, and just established a
relationship with the Gloucestershire
Wildlife Trust to provide nature-based
solutions to areas most affected by
flooding in the U.K.
We actively foster economic resilience
and community well-being in a number
of ways, since the communities that are
most vulnerable to extreme weather
are also often the most economically
vulnerable as well. For example, through
our annual Generosity in Action campaign,
we match the charitable donations of our
employees in their local communities.
In 2021 we set a performance target
to have three out of four stakeholders
recognize us as leaders in building
resilient communities, and developed
a Resilience Barometer to track our
progress. In 2022 we released the results
from our first survey and in 2023 we
expanded the Barometer’s geographic
perimeter to include U.S., U.K., and
E.U. stakeholders. In 2023, 57% of
stakeholders recognize us as leaders in
building resilient communities in Canada,
up 3 points from 2022, and 53% of
stakeholders recognizing our leadership
globally. A solid start, and with much
more work to do.
CEO’s letter
In 2022, we launched
our Climate Strategy
because we believed
that while helping
communities build
resilience, the changing
climate would also
create opportunities
to win as a business.
Four pillars were added
to our existing focus
on adaptation: commit
to net zero, leverage
our platform to shape
customer behaviour,
enable the transformation
by supporting existing
and new businesses that
are key to the transition,
and collaborate with
government and
industry to accelerate
climate action.
More information about our
Social Impact and Climate Strategy
progress will be available in our
Social Impact & ESG Report.
[ 25 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
Conclusion
While 2023 was a tough year for society, our business
demonstrated remarkable resilience. Our team performs best
in challenging times and this year was no exception. With our
strong financial foundation and balance sheet, we withstood
substantial pressure from natural disasters which enabled us
to get our customers back on track while continuing to invest
in our employees and our competitive advantages.
Intact is well positioned to make the
most of the current environment. In 2024
we will maintain discipline and continue
to advance our Strategic Roadmap
everywhere we operate. Inspired by our
Purpose and guided by our Values, we will
use our resources, scale and expertise to
help society and win in the marketplace.
We have the tools, the people, the
strategy, and the opportunities to grow
earnings and outperform. I want to thank
our customers, brokers, employees and
investors for your loyalty as we work
hard every day to deliver for you.
Charles Brindamour
Chief Executive Officer
[ 26 ]
2023 Intact Financial Corporation Annual Report CEO’s letter
[ 27 ]
2023 Intact Financial Corporation Annual Report Chairman’s letter
In 2023, Intact’s strength and resilience were
clear. Natural disasters dominated the headlines
and we, along with our customers, experienced
them first-hand. From ice storms to flooding to the
worst wildfire season ever recorded in Canada,
Intact withstood these significant headwinds and
continued to thrive.
The company had strong underlying
performance across the business, despite
higher-than-expected natural catastrophe
losses. Overall, the business delivered an
Operating Return on Equity (OROE) of
14.2% and maintained a strong balance
sheet with $2.7 billion of total capital margin.
The Board strives to ensure that Intact
is delivering strong financial returns and
realizing its purpose — to help people,
businesses and society prosper in good
times, and be resilient in bad times. The
company really delivered on all aspects
of its strategy and its purpose in 2023.
That effort was recognized through
financial and non-financial results,
including increased customers satisfaction
and Resilience Barometer scores.
One of the key roles of the Board is
to review the longer-term trends with
management to ensure the company
can use its competitive advantages
and is well positioned to continue to
outperform. Again, this year, we spent an
inordinate amount of time reflecting on
outside trends and their potential impact
on business prospects.
Climate change is at the top of the list as
a defining trend of the next century. We are
encouraged by the resolute focus Intact
has on its climate strategy, from being
well positioned to meet the increasing
need for customer protection to helping
communities build their resilience.
I referred to Intact’s Resilience
Barometer above— this is a measure
the company put in place two years
ago with the support of the Board.
The company’s ambition is to have three
out of four stakeholders recognize us as
leaders in building resilient communities.
In 2023, our Resilience Barometer
results indicated 57% of stakeholders
in Canada recognized Intact as leaders
in building resilient communities,
up 3 points from 2022, and 53% of
stakeholders recognized our leadership
globally. While this represents progress,
we will do more to ensure Intact can
meet its ambition of 75%. From a
business perspective, we also reviewed
extreme global warming scenarios with
management this year to ensure Intact
can continue to thrive while offering a
solid value proposition to customers.
Climate will remain at the forefront of the
Board’s priorities in 2024 and beyond. I
encourage you to read more about how
Intact is helping customers and society
to build more resilient communities in the
Social Impact & ESG Report.
Technology, data and AI is another key
trend that Intact has been ahead of the
curve on and one that the Board has also
spent significant time on this past year.
The Board is proud of Intact’s leading
William L. Young
Chairman of the Board
[ 28 ]
2023 Intact Financial Corporation Annual Report efforts in predictive AI to drive better risk
selection and pricing segmentation— it is
an important competitive advantage. Intact
has also developed strong governance
and ethical guard rails to protect people
and their data and we will continue to
monitor this closely. The Board will also
provide guidance as the business explores
generative AI as a tool to enhance the
customer experience.
Technology is driving change in the
business at an incredible pace and
another key driver of change and
accelerator of strategy is Intact’s growth
through acquisitions. One of the most
important is the acquisition and integration
of RSA. It has been a significant part of the
Board agenda for some time. The Board
wishes to congratulate management on
important progress in 2023 including the
realization of $350 million in synergies
in under three years, and an expected
early completion of the RSA integration in
Canada. We also want to acknowledge
the significant efforts of the U.K. team to
refocus RSA’s platform for outperformance
this past year. This included a difficult but
important decision to exit U.K. Personal
Lines. At the same time RSA acquired
Direct Line Insurance Group’s brokered
commercial lines business. This provides
an excellent opportunity to build on RSA’s
existing outperformance in the attractive
commercial lines market segment.
A topic the Board is often asked about is
the succession of senior management
- this is a critical mandate for us. We are
pleased to say that Intact’s bench remains
strong, with seven successors available
for each of the top 250 positions. And
at the same time, we continue to see
progress against Diversity, Equity and
Inclusion initiatives. This was evident in the
appointments of Anne Fortin as President
of Intact Insurance, Marie-Lucie Paradis
as Senior Vice President of belairdirect,
and Isabelle Girard as Senior Vice
President, Chief Digital and Data Officer.
The Board offers our congratulations
to Anne, Marie-Lucie, and Isabelle. And
the company’s bench strength extends
beyond Canada. The Board had the
opportunity to engage with the U.K.
leadership team this year when we
held a quarterly board meeting in
London for the first time.
Again, this year I engaged with
shareholders directly and we had
productive discussions. Director Indira
Samarasekera and I met with ten of our
20 largest shareholders, representing
holdings of approximately 38% of total
outstanding shares. Topics of discussion
included strategic priorities, board
changes, succession planning and our
social impact and ESG strategy, along
with progress to date. We look forward
to continuing with these engagements
in 2024.
Speaking of ESG, and governance
specifically, Intact has once again been
named one of Canada’s most respected
companies, with a top spot in The Globe
and Mail Board Games in 2023. This is a
true reflection of Intact’s purpose, Values
and strategy.
In closing, I would like to take this
opportunity to express my gratitude to my
Board colleagues. Your resolute dedication
and counsel helped us reach the strong
position we are in today and I am grateful
to each of you. I look forward to working
with you again in the year ahead.
I would also like to thank Charles
Brindamour and his executive team.
Chairman’s letter
Charles continues to show strong
leadership on important topics such
as climate resilience in a year when
the impacts of climate change were
clear. As the Globe and Mail pointed
out, Charles Brindamour has “become
a leading global voice advocating how
industries and communities can adapt
to the changing weather.” 2023 was a
year filled with important wins, but also
unique challenges. The executive team
has done an exceptional job planning for
the unexpected, navigating obstacles
and leading the business to sustainable
success. This leadership team gives me
the utmost confidence that Intact will
continue to outperform.
Finally, I want to thank you, the shareholders,
customers and employees for your loyalty
and trust. As I mentioned earlier, 2023 was a
year where Intact demonstrated its resilience
in abundance. But it also demonstrated
foresight, innovation, and solid leadership.
I am confident Intact will continue to deliver
on its purpose and outperform in the
years ahead.
Sincerely,
William L. Young
Chairman of the Board
[ 29 ]
2023 Intact Financial Corporation Annual Report Our board
Complete biographies
of the members of the
Board of Directors available
at www.intactfc.com.
William L. Young
Chair of the Board, Intact Financial Corporation
and Chair of the Board, AtkinsRéalis (formerly SNC Lavalin)
Charles Brindamour
Chief Executive Officer,
Intact Financial Corporation
Emmanuel Clarke
Corporate Director
Janet De Silva
Corporate Director
Audit Committee + Risk Management Committee
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
Stephani Kingsmill
Corporate Director
Governance and Sustainability Committee
+ Human Resources and Compensation Committee
Robert G. Leary
Corporate Director and Chairman, Arrow Global Group
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
[ 30 ]
As at February 13, 2024
2023 Intact Financial Corporation Annual Report Our leadership
Complete biographies
of our executives available
at www.intactfc.com.
Charles Brindamour
Chief Executive Officer,
Intact Financial Corporation
Patrick Barbeau
Executive Vice President
& Chief Operating Officer
Ken Anderson
Executive Vice President, CFO, RSA U.K.&I
Maude Choquette
Senior Vice President &
Chief Internal Auditor
Frédéric Cotnoir
Executive Vice President & Chief Legal Officer
Anne Fortin
President, Intact Insurance
Louis Gagnon
Chief Executive Officer, Canada
Darren Godfrey
Executive Vice President,
Global Specialty Lines
T. Michael Miller
Chief Executive Officer,
Global Specialty Lines
Isabelle Girard
Senior Vice President,
Chief Data & Digital Officer
Louis Marcotte
Executive Vice President &
Chief Financial Officer
Benoit Morissette
Executive Vice President,
Chief Risk & Actuarial Officer
Werner Muehlemann
Executive Vice President & Managing Director,
Intact Investment Management Inc.
Ken Norgrove
Chief Executive Officer, U.K.&I
Marie-Lucie Paradis
Senior Vice President,
Direct Distribution Canadian Operations
Carla Smith
Executive Vice President &
Chief People, Strategy and Climate Officer
As at February 13, 2024
[ 31 ]
2023 Intact Financial Corporation Annual Report 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 116;
Financial Statements —pages 1 to 113.
[ 32 ]
2023 Intact Financial Corporation Annual Report Intact Financial Corporation
Management’s Discussion and Analysis
For the year ended December 31, 2023
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
OVERVIEW.................................................................................................................................................................................................................5
PERFORMANCE ........................................................................................................................................................................................................7
ENVIRONMENT & OUTLOOK.................................................................................................................................................................................. 34
STRATEGY............................................................................................................................................................................................................... 37
FINANCIAL CONDITION .......................................................................................................................................................................................... 48
RISK MANAGEMENT............................................................................................................................................................................................... 66
ADDITIONAL INFORMATION .................................................................................................................................................................................. 91
INTACT FINANCIAL CORPORATION
1
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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, 2023. 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, 2023, compared to the corresponding periods in 2022. It should
be read in conjunction with our Consolidated financial statements for our fiscal year ended December 31, 2023. This MD&A is dated
February 13, 2024.
“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 & ESG
report, may be found online on SEDAR+ at www.sedarplus.ca.
• Abbreviations and definitions of selected key terms used in this MD&A are defined in Section 35 – Glossary and definitions.
• Other insurance-related terms are defined in Section 35 – 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%.
Adoption of new accounting standards
We adopted IFRS 17 – Insurance Contracts (“IFRS 17”) in conjunction with IFRS 9 – Financial instruments (“IFRS 9”) on
January 1, 2023, which replace IFRS 4 – Insurance Contracts (“IFRS 4”) and IAS 39 – Financial instruments: recognition and
measurement (“IAS 39”), respectively. IFRS 17 was applied retrospectively as at January 1, 2022, as a result comparative information
was restated (see “Restated” columns throughout this MD&A). IFRS 9 was applied retrospectively as of January 1, 2023 with no
restatement of comparative information. To help investors adapt to the changes to our financial disclosures, we have provided additional
explanations and insights in our IFRS 17 & 9 teach-in presentation dated April 27, 2023, available on our website. For more information,
refer to Note 2 – Adoption of new accounting standards to our Consolidated financial statements for the fiscal year ended
December 31, 2023.
Non-GAAP and other financial measures
We use both Generally Accepted Accounting Principles (GAAP) 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, Non-GAAP ratios (which are calculated using Non-GAAP
financial measures) and other 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 principal Non-GAAP financial measures included in the MD&A and other financial reports, alongside their closest GAAP
measures, are:
Section
Non-GAAP financial measures
Closest GAAP measures
31.1
Operating net underwriting revenue
Operating net claims and Operating net
underwriting expenses
Underwriting income (loss)
Operating net investment income
31.2
Net unwind of discount on claims liabilities
Operating net investment result
Distribution income
31.3
Total finance costs
Other operating income (expense)
PTOI
NOI attributable to common shareholders
Insurance revenue,
Expense from reinsurance contracts
Insurance service expense,
Income from reinsurance contracts
Insurance service result
Net investment income
Unwind of discount (insurance and reinsurance components
included in Net insurance financial result)
Net investment return and net insurance financial result
Share of profit from investments in associates and joint ventures,
Other income and expense (certain components)
Other finance costs
Other income and expense (certain components)
Income before income taxes
Net income attributable to shareholders
2 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section
Non-GAAP financial measures (continued)
Closest GAAP measures (continued)
31.4
31.5
31.6
31.7
Non-operating results
MYA and FX on claims liabilities
Net gains (losses) on investment portfolio, Net insurance
financial result (certain components), Other net gains
(losses), Acquisition, integration and restructuring costs
Changes in discount rates and other financial assumptions
(insurance and reinsurance components included in Net
insurance financial result)
Adjusted net income attributable to common
shareholders
Operating and total income tax expense (benefit)
Pre-tax income
Net income attributable to shareholders
Income tax benefit (expense)
Income before income taxes
Adjusted average common shareholders’ equity
Equity attributable to shareholders
Adjusted average common shareholders’ equity
(excluding AOCI)
Equity attributable to shareholders
Debt outstanding (excluding hybrid debt)
Debt outstanding
See Section 31 – Non-GAAP and other financial measures for the definition and reconciliation to the closest GAAP measures (or
“reported measures”), as well as the rationale for their use.
The Non-GAAP ratios included in the MD&A and other financial reports are:
• Operating net underwriting revenue growth and operating net underwriting revenue growth in constant currency;
which represents the change in operating net underwriting revenue year-over-year. Growth in constant currency is adjusted
by applying the respective exchange rates in effect for the current year to the previous year.
• Combined ratio, which the sum of the two following Non-GAAP ratios:
o Claims ratio (including underlying current year loss ratio, CAT loss ratio and PYD ratio), which represents operating
net claims divided by operating net underwriting revenues;
o Expense ratio (including commissions ratio, general expenses ratio and premium taxes ratio); which represents
operating net underwriting expenses divided by operating net underwriting revenues.
• Operating effective tax rate (operating income tax expense divided by PTOI) and total effective income tax rate (total
income tax expense divided by pre-tax income).
• NOIPS and OROE (NOI attributable to common shareholders divided by WANSO or adjusted average shareholders’ equity
excluding AOCI, respectively), AEPS and AROE (adjusted net income attributable to common shareholders divided by
WANSO or adjusted average common shareholders’ equity, respectively) as well as ROE (net income attributable to common
shareholders divided by adjusted average common shareholders’ equity).
• Adjusted debt-to-total capital ratio (debt outstanding excluding hybrid debt divided by adjusted total capital).
We also use other financial measures to assess our performance, including supplementary financial measures and segment
measures included in the MD&A and other financial reports (other than the Consolidated financial statements). These include operating
DPW, operating DPW growth, operating DPW growth in constant currency, operating DPW (continuing pro-forma basis), total capital
margin, regulatory capital ratios, BVPS and BVPS (excluding AOCI).
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
analyzes performance. Non-GAAP and other financial measures used by management are fully defined and reconciled to the
corresponding GAAP measures, where applicable.
Restated 2022 figures include certain reclassifications that do not directly pertain to the adoption of the IFRS 17 accounting standard
to align with the presentation adopted in the current year. Our comparative information was restated accordingly to maintain
comparability (see “Restated” columns throughout this MD&A).
INTACT FINANCIAL CORPORATION 3
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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”, “indicates”, “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, 2023, and are subject to change after that date. This MD&A contains
forward-looking statements with respect to the acquisition of Direct Line Insurance Group plc’s (“DLG”) brokered Commercial Lines operations (“the DLG
brokered commercial lines acquisition”), the exit of Royal & Sun Alliance Insurance Limited from the UK personal lines market, including the sale of our
UK direct personal lines operations to Admiral Group plc (“Admiral”), the realization of the expected strategic, financial and other benefits of the transactions
and the related economic conditions on the Company’s operations and financial performance. This MD&A also contains forward-looking statements with
respect to the Company’s climate-related strategy, goals or plans, based on our current expectations, estimates and projections involving inherent risks
and uncertainties, as they are based on various factors and assumptions, all of which are difficult to predict and many of which are beyond our control,
including technological advancement, development of climate-related measurement methodologies, varying decarbonization efforts across economies,
governmental or regulatory action, geopolitical factors impacting global energy needs, challenges of balancing emission reduction targets with an orderly,
just and inclusive transition, evolution of customer behavior, our ability to gather and verify data, the participation of various stakeholders or our ability to
implement various initiatives across our global operations within a specified timeframe.
Forward-looking statements are based on estimates and assumptions made by management based on management’s experience and perception of
historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the
circumstances. In addition to other estimates and assumptions which may be identified herein, estimates and assumptions have been made regarding,
among other things, the realization of the expected strategic, financial and other benefits of the DLG brokered commercial lines acquisition, Royal & Sun
Alliance Insurance Limited’s exit from the UK personal lines, including the sale of our UK direct personal lines operations to Admiral, and economic and
political environments and industry conditions. There can also be no assurance that the strategic and financial benefits expected to result from the DLG
brokered commercial lines acquisition will be realized. Many factors could cause the Company’s actual results, performance or achievements or future
events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, credit, market,
liquidity, operational, strategic and legal risks and the risks discussed in Section 29.6 - Top and emerging risks that may affect future results and
Section 29.7 - Other risk factors that may affect future results of this MD&A for the year ended December 31, 2023, including a major earthquake,
climate change, climate-related litigation or activism, catastrophe, increased competition and disruption, turbulence in financial markets, reserving
inadequacy, underwriting inadequacy, governmental and/or regulatory intervention, cyber security failure, failure of a major technology initiative, inability
to contain fraud and/or abuse, customer dissatisfaction, social unrest, third party reliance, failure of an acquisition or divestiture, employee defined benefit
pension plan risks, reinsurance inadequacy, distribution risks, inability to retain and to attract talent, business interruption to our operations, credit
downgrade, limit on dividend and capital distribution as well as artificial intelligence risk.
All of the forward-looking statements included in this MD&A and the quarterly earnings press release dated February 13, 2024 are qualified by these
cautionary statements and those made in the section entitled Risk management (Sections 26 to 30) of this MD&A for the year ended December 31, 2023
and the Company’s Annual Information Form for the year ended December 31, 2023. 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, 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.
Summary of changes in our Q4-2023 MD&A
Change
Relocated
Section
Segments and lines of business
UK&I segment
Shortened
Insurance industry at a glance (industry data)
Relocated
Information
Description integrated directly in each respective Segment section (Sections 5 – 8)
Underwriting results are presented on a total P&C basis and no longer disclosed by
line of business (in Section 6) due to our exit from the UK personal lines market
Information integrated directly in each respective Segment section (Sections 5 – 7)
Insurance industry at a glance
(outperformance)
Removed
Our relative performance update will be provided in 2024, which will allow for a better
yearly comparison with our peers (Section 32.7)
4 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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 over 30,000 employees putting our collective strengths to work – supporting customers and brokers and delivering
on the key strategies and best in class operations that are essential to the success of Intact Financial Corporation.
•
•
Largest provider of Property & Casualty insurance in Canada, a leading specialty lines insurer with international expertise and a
leader in commercial lines in the UK and Ireland. Our business has grown organically and through acquisitions to over $22 billion
of total annual operating DPW.
In Canada, we distribute insurance under the Intact Insurance brand 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 our
affinity groups, travel insurance, as well as exclusive and tailored offerings through Intact Prestige. 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.
2023 Operating DPW
(continuing pro-forma basis) 1
by business segment
Canada
UK&I
US
2023 Operating DPW
(continuing pro-forma basis) 1
by type
Personal lines
Specialty lines
Commercial lines
2023 Operating DPW
(continuing pro-forma basis) 1
by distribution channel
Brokers and MGAs
Direct to consumers
20%
13%
28%
$22.1B
67%
26%
$22.1B
46%
15%
$22.1B
85%
1 2023 DPW (continuing pro-forma basis) reflects the impact of the DLG brokered commercial lines acquisition for a full year and excludes UK personal lines DPW, as this
a better indication of our future annual premiums. See Section 31 – Non-GAAP and other financial measures for more details.
INTACT FINANCIAL CORPORATION 5
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 2 -
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.
Building sustainable competitive advantages
• We have broker relationships across Canada, US, UK and Europe for customers who value advice from 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.
• Our broker distribution brands are well recognized by customers and brokers alike. Intact Insurance is the most
recognized insurance brand in Canada1 and RSA is a storied brand with over 300 years of history in the UK.
• We have leading direct channel brands in Canada and Ireland for customers who prefer the convenience of a simplified
Scale in
distribution
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 digital tools provides brokers and customers with a simple and straightforward experience. Speed,
simplicity and transparency are core tenets of our customer-driven digital focus.
• Our people are the cornerstone to executing our strategy. As a Best Employer, we attract, retain and engage some of
Our
People
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
the best and most experienced talent from within and outside our industry.
• We have highly engaged employees and our strong set of Values and Leadership Success Factors guide decision
making and support 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, the US, UK, and Europe, 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 help us win in the
market.
• Over 300 AI models are leveraged across pricing and risk selection, digital engagement, claims operations, and
customer service. These models help us optimize underwriting performance and customer experience.
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 supply chain through our Claims Service Centres and our property supply chain
through On Side Restoration to strengthen our network and secure capacity. This provides a 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. We also account
for ESG considerations in our investments.
Acquisitions play an important role in accelerating the achievement of our goals.
•
• We are a proven industry consolidator with 19 successful P&C acquisitions since 1988. Most recently we acquired Direct
Line’s brokered Commercial Lines operations which strengthens RSA’s leading UK Commercial Lines platform. The
RSA acquisition strengthened our consolidation track record, having achieved an IRR well above our goal of 15%.
• 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.
1 Measured by Ipsos, a market research company
6 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
PERFORMANCE
Section 3 - Consolidated performance
3.1 Consolidated highlights
Q4-2023 Highlights (under IFRS 17)
• Net operating income per share1 up 45% to $4.22 driven by strong underwriting, investment and distribution results
• Undiscounted combined ratio1 was solid at 90.1% (85.0% discounted), reflecting strong underlying performance across all
geographies and our exit from the UK personal lines market, tempered by catastrophe losses in the UK&I
• Operating DPW1 increased 4%, with organic growth of 8%, led by double-digit growth in personal lines
• BVPS1 up 6% from Q3-2023, driven by a strong EPS of $2.78 (with a 48% increase year-over-year) and favourable capital markets
• Adjusted ROE1 of 11.7% (and ROE1 of 8.8%) after absorbing elevated catastrophe losses and UK personal lines exit costs. Operating
ROE1 increased to a solid 14.2% from 12.2% in Q3-2023
• Quarterly dividend increased by $0.11 to $1.21 per common share, representing a 10-year compounded annual growth rate of 10%
Section Q4-2023
Table 1
- Consolidated performance1
Operating DPW1 (growth in constant currency)
Operating income
Underwriting income1
Operating net investment income1
Net unwind of discount on claims liabilities1
Operating net investment result1
Distribution income1
Total finance costs1
Other operating income (expense)1
NOI attributable to common shareholders1, 2
Non-operating results1
Net income
Claims ratio1
Expense ratio1
Combined ratio (discounted) 1
Combined ratio (undiscounted) 1
Effective income tax rates
Operating1
Total1
Per share measures, basic and diluted (in dollars)
NOIPS1
EPS
BVPS1
Return on equity for the last 12 months
OROE1
AROE1
ROE1
3.2
3.2
11
12
8
8
13
8
3.2
14
14
3.2
3.2
24.6
3.2
3.2
3.2
Q4-2022
Restated
5,125
Change
2023
4%
22,370
2022
Restated
21,005
Change
5%
485
279
(117)
162
94
(55)
(38)
508
(221)
353
57.5%
32.9%
90.4%
93.2%
62%
35%
nm
(2)%
16%
nm
nm
48%
nm
50%
(5.0) pts
(0.4) pts
(5.4) pts
(3.1) pts
2,131
1,346
(884)
462
467
(235)
(157)
2,061
(829)
1,331
56.1%
33.4%
89.5%
94.2%
2,064
927
(378)
549
441
(189)
(163)
2,093
341
2,450
56.4%
33.0%
89.4%
91.8%
3%
45%
nm
(16)%
6%
nm
nm
(2)%
nm
(46)%
(0.3) pts
0.4 pts
0.1 pts
2.4 pts
5,410
787
376
(217)
159
109
(62)
(45)
752
(205)
531
52.5%
32.5%
85.0%
90.1%
16.9%
28.5%
18.0%
17.4%
(1.1) pts
11.1 pts
19.0%
27.6%
19.6%
19.5%
(0.6) pts
8.1 pts
4.22
2.78
81.71
2.91
1.88
82.84
45%
48%
(1)%
11.70
6.99
11.92
13.63
(2)%
(49)%
Total capital margin1
Adjusted debt-to-total capital ratio1
24.2
24.3
1 See Section 31 – 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 49 for more details.
14.2%
11.7%
8.8%
2,671
22.4%
14.0%
19.2%
16.3%
2,379
20.7%
0.2 pts
(7.5) pts
(7.5) pts
292
1.7 pts
INTACT FINANCIAL CORPORATION 7
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
3.2 Consolidated performance
Table 2 – Consolidated underwriting performance1
Operating DPW (growth in constant currency)
Canada
UK&I
US
Total
Combined ratio (undiscounted)
Canada
UK&I
US
Combined ratio (undiscounted)
Impact of discounting2
Combined ratio (discounted)
Section Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
5.1
6.1
7.1
5.1
6.1
7.1
3,682
1,112
616
5,410
86.7%
104.6%
86.4%
90.1%
(5.1)%
85.0%
3,410
1,150
565
5,125
8%
(9)%
9%
4%
87.6%
116.4%
84.7%
93.2%
(2.8)%
90.4%
(0.9) pts
(11.8) pts
1.7 pts
(3.1) pts
(2.3) pts
(5.4) pts
14,891
4,706
2,773
22,370
94.5%
96.4%
88.7%
94.2%
(4.7)%
89.5%
13,995
4,664
2,346
21,005
90.2%
99.3%
87.8%
91.8%
(2.4)%
89.4%
6%
(3)%
14%
5%
4.3 pts
(2.9) pts
0.9 pts
2.4 pts
(2.3) pts
0.1 pts
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 Includes the impact of discount build on our claims liabilities for all P&C segments. See Section 8 – Corporate and other for more information.
Q4-2023 vs Q4-2022
2023 vs 2022
Operating DPW
growth1 (in constant
currency)
(Sections 5-7)
Operating DPW growth (in constant currency)
DPW growth - reported
DPW growth - excluding exits1
DPW growth - organic2
Q4-2023
4%
11%
8%
2023
5%
7%
6%
1 Excludes DPW from UK personal lines (motor, home & pet) for full-year 2023 and 2022.
2 Excludes DPW from the exited lines above, the end of a large commercial UK motor contract as well as the DLG brokered commercial lines acquisition
(in the UK effective as of Q4-2023) and the acquisition of the E&S builder’s risk operations (in the US effective as of Q4-2022).
• Organic operating DPW growth was 8% in the quarter and 6% for the year, driven by strong momentum
in Canada personal lines and continued rate actions across all geographies.
Underwriting
income1
(Sections 5-8)
• Undiscounted combined ratio of 90.1%
improved by 3.1 points compared to last year,
with strong underlying performance across all
regions and reflecting our exit from the UK
personal lines market.
• Undiscounted combined ratio of 94.2%, including
approximately 7 points of catastrophe losses. This
year, strong underlying performances were delivered
across all geographies, driven by underwriting
discipline,
expense
management.
reserving
prudent
and
•
See Section 8 – Corporate and other for details on our discounted combined ratios.
Operating net
investment result1
(Section 11)
• Operating net investment income increased
by 35% to $376 million, driven by higher book
yields and increased turnover of our portfolio
over the last 12 months.
• Operating net investment income increased by
45% to $1,346 million, driven by the benefits of rising
yields and increased turnover of our portfolio.
•
The favourable net impact of the discount build and unwind on claims liabilities was $53 million for the
quarter and $64 million for the year, reflecting rising interest rates throughout most of the year.
See Section 8 – Corporate and other for more details on discount build and unwind on claims liabilities.
Distribution income1
(Section 12)
• Distribution income increased by 16% to
$109 million, mainly driven by BrokerLink’s
recent acquisitions paired with solid organic
growth.
8 INTACT FINANCIAL CORPORATION
• Distribution
income
increased by 6%
to
$467 million, reflecting lower variable commissions
compared to last year’s strong level. In 2024, we
expect growth of at least 10%.
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Total finance costs1
(Section 8)
•
Total finance costs of $62 million for the quarter and $235 million for the year were higher than last year,
driven by additional financing required to fund strategic initiatives throughout the year, as well as the impact of
higher interest rates on short-term debt.
Other operating
income (expense)1
(Section 8)
NOIPS1
• Other operating expenses of $45 million for the quarter and of $157 million for the year were higher than
expectations due to intersegment eliminations, while our corporate expenses remained relatively stable. See
Section 8 – Corporate and other for further details.
• NOIPS of $4.22 increased by 45% driven by
solid
topline growth, higher underwriting
margins, as well as strong investment and
distribution results.
• NOIPS of $11.70 decreased by 2%, reflecting
significant weather-related losses in 2023, which offset
otherwise strong underwriting and investment results.
Non-operating
results1 (Section 13)
• Non-operating
losses of $205 million
reflected mainly underwriting
losses and
restructuring costs related to the exit of our UK
personal lines business, offsetting mark-to-
market gains on our equity securities.
• Non-operating losses of $829 million, of which
almost half was driven by underwriting losses and
restructuring costs from the UK personal lines motor
exit in Q1-2023, followed by the exit of UK home and
pet operations in Q4-2023.
Effective income tax
rates1 (Section 14)
• Operating effective income tax rate of 16.9% for the quarter and 19.0% for the year were lower than last
year, due to a higher proportion of non-taxable investment returns. We also benefitted from the recognition of
additional deferred tax assets as a result of our improved outlook on future profitability in the UK.
• Total effective income tax rate of 28.5% for the quarter and 27.6% for the year increased from the prior
year, as the benefits mentioned above were offset by a temporary increase in the non-operating income tax
expense related to the UK pension buy-in transaction.
EPS
• EPS of $2.78 was up 48%, driven by strong
growth in net operating income this quarter, as
described above.
• EPS of $6.99 decreased 49% year-over-year, mainly
due to investment losses and non-operating losses
from strategic actions taken over the course of the year.
In addition, 2022 benefited from the gain on sale of
Codan Denmark.
Return on equity for
the last 12 months1
• Operating ROE of 14.2% reflected strong operating performance across businesses, tempered by a 3-point
impact from catastrophe losses in excess of expectations over the last 12 months.
• Adjusted ROE of 11.7% and ROE of 8.8% were healthy in spite of the non-operating losses previously
BVPS1
(Section 24.6)
mentioned.
• BVPS of $81.71 increased by 6% from Q3-
2023, driven by strong operating performance
and mark-to-market gains on our fixed-income
investments from a decrease in interest rates.
• BVPS remained in line with last year, as anticipated.
The dilutive
the UK pension buy-in
transaction in Q1-2023 was fully recovered by strong
earnings, capital gains in the quarter and the equity
issuance from Q3-2023.
impact of
Adjusted debt-to-
total capital ratio1
(Section 24.3)
Financial condition1
(Section 24.2)
• Our adjusted debt-to-total capital ratio of 22.4% was relatively stable compared to last quarter, as the growth
in capital from strong earnings was tempered by financing issued in connection with Direct Line Insurance Group
plc’s (“DLG”) brokered commercial lines acquisition. We expect to return to our long-term target of 20% by the
end of 2024.
• We ended the quarter in a strong financial position, with solid regulatory capital ratios in all jurisdictions and
a total capital margin of $2.7 billion. Strong capital generated in the quarter, as well as favourable market
movements, offset $0.9 billion of capital deployed following the close of the DLG brokered commercial lines
acquisition.
1 See Section 31 – Non-GAAP and other financial measures for more details.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
3.3 GAAP and Non-GAAP KPIs
Throughout our MD&A, we refer to our principal key performance indicators (KPIs), which are comprised of both GAAP and Non-GAAP financial
measures. Our Non-GAAP financial measures represent GAAP measures with changes in the geography of certain components, which reflect how
we manage and evaluate our business. Although our individual Non-GAAP key performance indicators do not have a meaning prescribed by IFRS,
the sum of all operating and non-operating components reconcile in total to Net income, as presented in our Consolidated financial statements,
and our bottom-line KPIs are identical in both instances. All Non-GAAP financial measures are reconciled to their closest GAAP measures in
Section 31 – Non-GAAP and other financial measures.
The below KPIs reflect what we use to evaluate our performance consistently over time:
Table 3 – Non-GAAP and GAAP key performance indicators
Non-GAAP KPIs
Closest GAAP measures
MD&A captions
2023
2022
Restated
Analyses
of results
Operating net underwriting
revenue
20,365
19,522
Total operating net claims
& expenses
18,234
17,458
Underwriting income
2,131
2,064
Sections
5-8
Sections
5-8
Sections
5-8
Financial Statement
captions
Insurance revenue
Expense from reinsurance
contracts
Insurance service expense
Income from reinsurance
contracts
2023
2022
Restated
Reconciliation
to GAAP
25,507
25,914
(3,056)
(3,475)
(22,584)
(22,750)
2,442
2,913
Table 43
Table 43
Insurance service result
2,309
2,602
Table 43
Operating net investment
income
Net unwind of discount on
claims liabilities
1,346
(884)
927 Section 11 Net investment income
1,346
931
Table 46
(378) Section 8 Unwind of discount2
(832)
(368)
Table 47
PTOI
2,668
2,702 Section 3.2
NOI attributable to
common shareholders
NOIPS
2,061
11.70
2,093 Section 3.2
Income before income
taxes
Net income attributable to
shareholders
1,804
3,007
Table 48
1,316
2,454
Table 49
11.92 Section 3.2 EPS
6.99
13.63
Table 55
GAAP KPIs (composite measures of the above KPIs)
MD&A captions
2023
2022
Restated
Analyses
of results
Financial Statement
captions
2023
2022
Restated
Reconciliation
to GAAPs
Net income
EPS
BVPS
1,331
6.99
81.71
2,450 Section 3.2 Net income
13.63 Section 3.2 EPS
82.84 Section 3.2 BVPS
1,331
6.99
81.71
2,450 N/A - identical
13.63 N/A - identical
82.84 N/A - identical
1
s
I
P
K
P
A
A
G
N
O
N
-
s
I
P
K
P
A
A
G
1 For a reconciliation to the closest GAAP measures, please see Section 31 – Non-GAAP and other financial measures.
2 Included within Note 24 – Net investment return and net insurance financial result from the Consolidated financial statements.
10 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 4 - Segment performance
We report our financial results under 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 13.2 – Income (loss) from exited lines for more details).
Canada (CAN)
Segment
Underwriting and distribution
activities in Canada.
Three lines of business:
Personal auto
Personal property
Commercial lines (incl.
Specialty lines)
SEGMENTS
UK and International
(UK&I) Segment
Underwriting activities in the
UK, Ireland and Europe.
Predominately in the
Commercial lines of
business (incl. Specialty
lines).
US
Segment
Underwriting and
distribution activities in
the US.
One line of business:
Commercial lines
(Specialty 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.
4.1 Operating performance by segment
Table 4 – Operating performance by segment1,2
For the three-month periods ended December 31,
CAN
UK&I
US
Corp.
Total
CAN
UK&I
US
Corp.
Total
2023
2022 - Restated
Operating DPW
3,682
1,112
616
-
5,410
3,410
1,150
565
-
5,125
Operating net underwriting revenue
Operating net claims
Operating net underwriting expenses
Underwriting income (loss)
Operating net investment income
Net unwind of discount on claims liabilities
Operating net investment result
Distribution income
Total finance costs
Other operating income (expense)
3,658
(2,023)
(1,148)
487
-
-
-
102
(3)
-
1,011
(706)
(352)
(47)
-
-
-
-
-
-
590
(296)
(214)
80
-
-
-
7
-
-
-
268
(1)
267
376
(217)
159
-
(59)
(45)
5,259
(2,757)
(1,715)
787
376
(217)
159
109
(62)
(45)
3,454
(1,931)
(1,095)
428
-
-
-
91
(5)
-
1,037
(835)
(372)
(170)
-
-
-
-
-
-
546
(274)
(189)
83
-
-
-
3
-
-
4
140
-
144
279
(117)
162
-
(50)
(38)
PTOI
586
(47)
87
322
948
514
(170)
86
218
5,041
(2,900)
(1,656)
485
279
(117)
162
94
(55)
(38)
648
For the twelve-month periods ended December 31,
2023
2022 - Restated
Operating DPW
Operating net underwriting revenue
Operating net claims
Operating net underwriting expenses
Underwriting income (loss)
Operating net investment income
Net unwind of discount on claims liabilities
Operating net investment result
Distribution income
Total finance costs
Other operating income (expense)
CAN
14,891
14,086
(8,802)
(4,511)
773
-
-
-
444
(13)
-
UK&I
4,706
4,143
(2,521)
(1,471)
151
-
-
-
-
-
-
US
Corp.
Total
CAN
UK&I
US Corp.
Total
2,773
-
22,370 13,995
4,664 2,346
-
21,005
2,114
(1,052)
(823)
239
22
949
(3)
968
- 1,346
(884)
-
462
-
23
-
(222)
-
(157)
-
20,365 13,531
(7,917)
(4,288)
1,326
-
-
-
433
(12)
-
(11,426)
(6,808)
2,131
1,346
(884)
462
467
(235)
(157)
4,107 1,866
(941)
(697)
228
-
-
-
8
-
-
(2,625)
(1,455)
27
-
-
-
-
-
-
18
467
(2)
483
927
(378)
549
-
(177)
(163)
19,522
(11,016)
(6,442)
2,064
927
(378)
549
441
(189)
(163)
2,702
PTOI
1,204
151
262 1,051
2,668
1,747
27
236
692
1 The totals of the segment measures reconcile to Table 1 – Consolidated performance.
2 See Section 31 – 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, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 5 - Canada segment
Our underwriting activities in Canada
• We have $14.9 billion in annual operating DPW in 2023 ($14.0 billion in 2022) and remain the largest player with
an estimated market share of 19% in 2022¹.
• We underwrite automobile, home and business insurance contracts to individuals and businesses in Canada.
• Personal auto – protects our customers’ vehicles with coverages including accident benefits, third party
liability, and physical damage.
• Personal property – provides protection to our customers for their homes and belongings from risks such
as fire, theft, vandalism, water damage and other damages; it also provides coverage for personal liability.
• Commercial lines (including specialty lines) – provides a broad range of coverages including commercial
auto, property, and liability coverages tailored to the needs of a diversified group of businesses.
• We offer our products through multiple distribution channels including brokers, direct to consumer and our managing general agent
(MGA) platform.
•
Intact Insurance branded products are sold through a wide network of brokers, including our wholly-owned subsidiary BrokerLink.
• belairdirect is our direct-to-consumer brand. Starting in fall 2023, we began our rebrand of Johnson Insurance and Anthony Insurance to
belairdirect.
•
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 our affinity groups, travel insurance, 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 combined ratio outperformance.
¹ 2023 market share update will be available in the Q1-2024 MD&A.
In 2022, the P&C market grew by 8%, driven by rate increases, to $75 billion in annual premiums.
The top five insurers represented 48% of the market, and the top 20 had a combined market share of 84%.
P&C insurance industry in Canada
•
•
•
•
The P&C industry offers its products primarily through brokers, which make up two-thirds of industry premiums, and direct distribution channels.
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, whereas personal auto is regulated in all provinces. Commercial auto
regulation varies depending on the segments, with some being regulated in all provinces and others remaining unregulated. The Office of the
Superintendent of Financial Institutions’ (OSFI) mandate is to regulate and supervise federally regulated P&C insurance companies, conducting
prudential reviews to determine their financial soundness.
2023 Operating DPW2
by line of business
2023 Operating DPW 2
by region
PA PP CL
Ontario Québec
Alberta Other
2023 Operating DPW 2
by distribution channel
Brokers and MGAs
Direct to consumers³
34%
26%
$14.9B
40%
15% 15%
20%
$14.9B
31%
39%
$14.9B
80%
2 See Section 31 – Non-GAAP and other financial measures for more details.
3 Split between retail, affinity and travel.
12 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
5.1 P&C Canada
Table 5 – Underwriting results for P&C Canada1
Q4-2023
Q4-2022
Restated
Change
2023
Operating DPW
Operating net underwriting revenue
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
Combined ratio (undiscounted)
Personal auto
Personal property
Commercial lines
3,682
3,658
487
59.9%
0.8%
(5.3)%
55.4%
14.8%
12.8%
3.7%
3,410
3,454
428
8%
6%
14%
59.8%
2.3%
(6.2)%
0.1 pts
(1.5) pts
0.9 pts
55.9%
(0.5) pts
14.2%
13.7%
3.8%
0.6 pts
(0.9) pts
(0.1) pts
31.3%
31.7%
(0.4) pts
86.7%
95.2%
75.8%
84.4%
87.6%
(0.9) pts
93.5%
76.5%
89.1%
1.7 pts
(0.7) pts
(4.7) pts
5.2
5.3
5.4
1 See Section 31 – Non-GAAP and other financial measures for more details.
2022
Restated
13,995
13,531
Change
6%
4%
14,891
14,086
773
1,326
(42)%
60.2%
7.5%
(5.2)%
62.5%
15.3%
13.0%
3.7%
32.0%
94.5%
94.7%
100.7%
89.3%
59.9%
4.1%
(5.5)%
0.3 pts
3.4 pts
0.3 pts
58.5%
4.0 pts
15.4%
12.5%
3.8%
(0.1) pts
0.5 pts
(0.1) pts
31.7%
0.3 pts
90.2%
4.3 pts
93.2%
89.2%
87.2%
1.5 pts
11. 5 pts
2.1 pts
• Operating DPW growth of 8% reflected double-digit
• Operating DPW growth of 6% driven by continued rate
Q4-2023 vs Q4-2022
2023 vs 2022
growth within personal lines, while growth in commercial
lines was driven by rate actions.
actions in supportive market conditions.
• Expense ratio of 31.3% reflected lower general expenses
mainly due to lower variable compensation.
• Combined ratio improved 0.9 points to a strong 86.7%
with solid underlying results in all lines of business and
benign catastrophe losses.
• Expense ratio of 32.0% was broadly in line with last year,
as variable commissions returned closer to historical
levels, while general expenses reflected technology
investments to support growth initiatives.
• Combined ratio of 94.5% remained healthy despite
roughly 8 points of catastrophe losses, primarily impacting
our personal property and commercial lines performance.
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
5.2 Personal auto
Table 6 – Underwriting results for Personal auto1
Operating DPW
Written insured risks (in thousands)
Operating net underwriting revenue
Underwriting income
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
1,408
1,103
1,524
74
75.8%
(0.1)%
(5.9)%
69.8%
25.4%
1,256
1,083
1,402
92
12%
2%
9%
(20)%
77.7%
0.3%
(10.6)%
(1.9) pts
(0.4) pts
4.7 pts
67.4%
26.1%
93.5%
2.4 pts
(0.7) pts
1.7 pts
5,956
5,034
5,808
306
74.3%
1.1%
(6.5)%
68.9%
25.8%
94.7%
Change
8%
-%
5%
(19)%
1.3 pts
0.6 pts
- pts
1.9 pts
(0.4) pts
5,514
5,035
5,557
376
73.0%
0.5%
(6.5)%
67.0%
26.2%
93.2%
1.5 pts
Combined ratio (undiscounted)
1 See Section 31 – Non-GAAP and other financial measures for more details.
95.2%
Q4-2023 vs Q4-2022
2023 vs 2022
• Operating DPW growth accelerated to 12%, as a result of
• Strong operating DPW growth of 8%, with growth
rate actions in hard market conditions and continued
momentum in unit growth.
accelerating since the beginning of the year, driven by
our rate actions in supportive market conditions.
• Underlying current year loss ratio of 75.8% improved by 1.9
points compared to last year, driven by higher earned premiums
and slightly lower claims frequency. Earned rates are now in the
high single digits and continue to mitigate the impact of inflation.
• Underlying current year loss ratio of 74.3%
increased compared to last year. The benefit of higher
earned rates, which have increased quarter-over-
quarter, continued to temper inflationary pressures.
• CAT loss ratio was muted in the quarter.
• CAT loss ratio of 1.1% was in line with expectations.
•
Favourable PYD ratios of 5.9% for the quarter and 6.5% for the year continued to be strong, consistent with recent
quarters and reflective of our prudent reserving practices.
• Expense ratio of 25.4% slightly decreased compared to last
• Expense ratio of 25.8% was broadly in line with last
year, as variable commissions returned closer to
historical levels.
• Our full-year combined ratio of 94.7% reflected our
profitability actions to-date and is in line with our sub-
95 guidance, which remains unchanged for the next
twelve months.
year, mainly due to lower variable compensation.
• Combined ratio of 95.2% was largely in line with our
seasonally-adjusted sub-95 guidance.
14 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
5.3 Personal property
Table 7 – Underwriting results for Personal property1
Operating DPW
Written insured risks (in thousands)
Operating net underwriting revenue
Underwriting income (loss)
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
946
708
949
229
44.4%
0.6%
(1.7)%
43.3%
32.5%
874
697
895
210
42.9%
1.4%
(2.0)%
42.3%
34.2%
8%
2%
6%
9%
1.5 pts
(0.8) pts
0.3 pts
1.0 pt
(1.7) pts
3,877
3,016
3,650
(26)
49.0%
18.3%
(0.3)%
67.0%
33.7%
3,632
2,981
3,493
376
47.9%
9.8%
(2.5)%
55.2%
34.0%
7%
1%
4%
nm
1.1 pts
8.5 pts
2.2 pts
11.8 pts
(0.3) pts
Combined ratio (undiscounted)
1 See Section 31 – Non-GAAP and other financial measures for more details.
75.8%
Q4-2023 vs Q4-2022
• Operating DPW growth was strong at 8%, reflecting rate
increases in hard market conditions and continued unit
growth momentum.
76.5%
(0.7) pts
100.7%
89.2%
11.5 pts
2023 vs 2022
• Operating DPW growth was 7%, reflecting rate and unit
growth momentum in supportive market conditions.
• Underlying current year loss ratio of 44.4% remained
strong, as higher earned rates continued to mitigate
severity pressures.
• Underlying current year loss ratio of 49.0% benefitted
from higher earned rates, which offset in part elevated non-
catastrophe large losses in the year.
• CAT loss ratio of 0.6% was lower than last year and
reflective of benign weather during the quarter.
• CAT loss ratio of 18.3% included approximately 11 points
of catastrophe losses in excess of expectations, driven by
multiple events, particularly in the summer months.
•
Favourable PYD ratio was healthy at 1.7% and in line
with expectations.
•
Favourable PYD ratio was close to nil, with adverse
development earlier in the year offsetting favourable
development in the latter half of 2023.
• Expense ratio of 32.5% decreased compared to last year,
• Expense ratio of 33.7% was broadly in line with last year,
mainly due to lower variable compensation.
as variable commissions returned closer to historical levels.
• Combined ratio was very strong at 75.8%, reflecting a
• Combined ratio was of 100.7% mainly on account of
robust underlying performance coupled with mild weather.
elevated catastrophe losses. With pricing, risk selection,
product, claims and supply chain actions already underway,
we remain confident to deliver sub-95 performance, even
with severe weather.
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
5.4 Commercial lines
Table 8 – Underwriting results for Commercial lines1
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Operating DPW
Operating net underwriting revenue
Underwriting income
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Expense ratio
1,328
1,185
184
51.6%
2.1%
(7.5)%
46.2%
38.2%
Combined ratio (undiscounted)
1 See Section 31 – Non-GAAP and other financial measures for more details.
84.4%
1,280
1,157
126
51.1%
5.5%
(4.1)%
52.5%
36.6%
4%
2%
46%
0.5 pts
(3.4) pts
(3.4) pts
(6.3) pts
1.6 pts
89.1%
(4.7) pts
5,058
4,628
493
51.3%
7.1%
(7.5)%
50.9%
38.4%
89.3%
Change
4%
3%
(14)%
(1.6) pts
2.9 pts
(0.8) pts
0.5 pts
1.6 pts
4,849
4,481
574
52.9%
4.2%
(6.7)%
50.4%
36.8%
87.2%
2.1 pts
Q4-2023 vs Q4-2022
2023 vs 2022
• Operating DPW growth of 4% quarter-to-date and for the year, reflecting continued rate discipline and strong retention in
most lines, partially offset by targeted actions to optimize the portfolio and increased competition for large accounts within
specialty lines.
• Underlying current year loss ratios were strong at 51.6% for the quarter and 51.3% for the year, driven by the benefit
of our profitability actions in hard market conditions, including higher earned rates.
• CAT loss ratio of 2.1% was lower than last year and
reflective of a benign quarter.
• CAT loss ratio of 7.1% was higher than last year, driven
by roughly 3 points of catastrophe losses in excess of
expectations, resulting from multiple events throughout the
year.
•
Favourable PYD ratios were strong at 7.5% for the quarter and for the year, reflecting favourable development on
losses from longer-tail exposures.
• Expense ratios of 38.2% in the quarter and 38.4% for the year increased compared to last year, driven by higher general
expenses from the development and deployment of new technology.
• Combined ratio of 84.4% improved 4.7 points compared
to last year. Continued underwriting discipline, coupled
with lower catastrophe losses helped deliver strong results
for the quarter.
• Combined ratio of 89.3% remained solid, as we
shouldered elevated catastrophe losses. We remain well
positioned to continue to deliver a low-90s or better
combined ratio, as a result of our profitability actions.
16 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 6 - UK and International (UK&I) segment
Our underwriting activities in the UK, Ireland and Europe1
• We provide a broad range of commercial insurance, specialty lines and risk management
expertise for businesses in the UK, Ireland and Europe, as well as internationally through our global
network. We also provide home and motor insurance products in Ireland.
• We have reported £2.8 billion ($4.7 billion) in annual operating DPW for 2023. On a
continuing pro-forma basis2, this would be approximately £2.6 billion ($4.4 billion).
•
•
•
In the UK commercial lines, we have a 5% market share. Products are offered via brokers
through the RSA brand and the NIG and FarmWeb brands which became part of the Intact
Group through the DLG brokered commercial lines acquisition.
In Ireland, we hold a top 5 position overall, with over £325 million in annual operating DPW.
Personal and commercial insurance are offered through a multi-distribution network, including 123.ie (our direct-to-
consumer brand) and brokers, complimented by affinity partnerships.
In Europe, we offer products through the RSA brand via brokers in France, Belgium, Spain and the Netherlands.
• Effective Q4-2023, we have exited our UK personal lines operations and have expanded our commercial lines portfolio through
the DLG brokered commercial lines acquisition. These strategic actions accelerate our path to sustainable outperformance for
the continuing UK&I 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 combined ratio by 2025. Following our recent strategic actions taken,
the refocused UK&I segment is expected to deliver a low-90s combined ratio in 2024.
1 Market share and industry data are for 2022.
2 Reflects the impact of DLG brokered commercial lines acquisition for a full year and excludes UK personal lines DPW, as this is a better indication of our future annual
premiums.
P&C Insurance industry in the UK
•
In 2022, the UK domestic commercial lines market represented £25 billion in annual premiums. The London Specialty Market
represented over £50 billion in annual premiums, following significant growth over recent years, primarily driven by hard market
conditions.
•
In the UK Commercial Lines market, the commercial Motor market is very concentrated with the largest 10 insurers representing
94% of the market, whereas commercial property and liability are more fragmented with the largest 10 insurers accounting for
80% and 73% of the market, respectively.
• Brokers remain the primary distribution channel for commercial lines, including SME.
•
The UK non-life insurance industry is regulated by two regulatory bodies, the Prudential Regulation Authority (PRA) and the
Financial Conduct Authority (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.
2023 Operating DPW3
(continuing pro-forma basis)4
by line of business
CL
SL
PL
2023 Operating DPW3
(continuing pro-forma basis)4
by region
UK
Ireland
Europe
2023 Operating DPW3
(continuing pro-forma basis)4
by distribution channel
Brokers
Direct
33%
6%
£2.6B
61%
13%
10%
£2.6B
77%
6%
£2.6B
94%
3 See Section 31 – Non-GAAP and other financial measures for more details.
4 2023 DPW (continuing pro-forma basis) reflects the impact of the DLG brokered commercial lines acquisition for a full year and excludes UK personal lines DPW, as
this a better indication of our future annual premiums.
INTACT FINANCIAL CORPORATION 17
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
6.1 P&C UK&I
Following the strategic actions taken to exit the UK personal lines market, the majority of our underwriting activities lie within our
commercial lines business, as we focus resources on our leading UK commercial and specialty lines platform. Our remaining personal
lines business represents a small portion of our overall UK&I business. Our underwriting results will therefore be presented solely
on a total P&C UK&I basis going-forward.
To provide comparability with last year, the UK personal lines results (motor, home and pet) were excluded from full-year 2023 and
2022 results. The impact from the DLG brokered commercial lines acquisition is included as part of Q4-2023 results. For more details
on our recent exits, see Section 13.2 – Income (loss) from exited lines.
Change
2023
Reported
Table 9 – Underwriting results for P&C UK&I1
Operating DPW
Growth in constant currency
Q4-2023
1,112
Operating net underwriting revenue
1,011
Underwriting (loss) income
Underwriting ratios
Underlying current year loss ratio
CAT loss ratio
(Favourable) unfavourable PYD ratio
Claims ratio
Commissions
General expenses
(47)
60.8%
15.0%
(6.0)%
69.8%
18.8%
16.0%
Q4-2022
Pro-forma2 &
Restated
Change
2023
Pro-forma2
830
723
34
60.9%
2.1%
(3.5)%
59.5%
18.4%
17.5%
34%
26%
40%
nm
(0.1) pts
12.9 pts
(2.5) pts
10.3 pts
0.4 pts
(1.5) pts
3,768
3,299
189
56.5%
6.6%
(4.0)%
59.1%
17.4%
17.8%
2022
Pro-forma2 &
Restated
3,379
2,819
55.9%
4.7%
(5.9)%
54.7%
18.0%
17.0%
Expense ratio
Combined ratio (undiscounted)
1 See Section 31 – Non-GAAP and other financial measures and Section 13.2 – Income (loss) from exited lines for more details.
2 Results exclude UK personal lines results.
35.0%
89.7%
35.9%
95.4%
(1.1) pts
104.6%
9.2 pts
94.3%
35.2%
34.8%
292
(35)%
12%
7%
17%
0.6 pts
1.9 pts
1.9 pts
4.4 pts
(0.6) pts
0.8 pts
0.2 pts
4.6 pts
4,706
4,143
151
57.8%
5.2%
(2.1)%
60.9%
17.5%
18.0%
35.5%
96.4%
Q4-2023 reported vs Q4-2022 pro-forma
• Operating DPW growth in constant currency was 26%,
driven by the DLG brokered commercial lines acquisition.
Excluding this impact and the end of a large commercial
motor contract, organic growth was 6% for the quarter,
mainly due to rate actions in supportive market conditions.
2023 pro-forma vs 2022 pro-forma
• Operating DPW growth in constant currency was 7%,
including an organic growth of 6%, driven by a strong
performance in specialty lines.
• Underlying current year loss ratio was 60.8%, in line
• Underlying current year loss ratio remained strong at
with last year, reflecting continued underwriting discipline,
tempered by a 2-point impact from increased large losses.
56.5%, and broadly in line with last year, as we continue to
focus on portfolio quality.
• Elevated CAT loss ratio of 15.0% with roughly 11 points
of catastrophe losses in excess of expectations, driven by
two severe windstorms, Storms Ciaran and Babet.
Favourable PYD was strong at 6.0%, mainly due to
positive development on specific large commercial claims.
•
• CAT loss ratio of 6.6% was higher than last year, resulting
from the storms in Q4-2023 as well as from non-weather-
related losses earlier in the year.
Favourable PYD ratio was solid at 4.0%, reflecting
positive development on large losses throughout most of
the year.
•
• Expense ratio of 34.8% improved 1.1 points compared to
last year, mainly due to non-recurring benefits in the
quarter.
• Expense ratio of 35.2% was largely in line with last year,
driven by investments to support growth initiatives,
including technology expenditures.
• Combined ratio was elevated at 104.6% reflecting
• Combined ratio of 94.3% included a 2-point impact from
elevated catastrophe and large losses, partially offset by
favourable PYD. The DLG business performance was
consistent with expectations.
catastrophe losses in excess of expectations. We expect to
run this business at a combined ratio of approximately 92%
in 2024, and to improve to roughly 90% within 24 months.
18 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 7 - US segment
Our underwriting activities in the US
• We are focused on small to medium-sized businesses, with US$2.1 billion ($2.8 billion) in annual
operating DPW for 2023.
• We provide a broad range of specialty insurance solutions tailored to meet the unique needs of
specific industry segments or product/customer groups.
o 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.
o Businesses offering distinct specialty products to broad customer groups include Specialty Property, Surety, Tuition Reimbursement,
Management Liability, Cyber, and Environmental.
• We are one of the top 10 largest Surety underwriters in the United States, with a significant presence in the Commercial Surety market, as well
as Contract Surety and Customs bonds.
• 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 (MGA), including:
o A.W.G. Dewar is our MGA platform that underwrites Tuition Reimbursement.
o
o Striior Insurance Solutions (formerly Highland Insurance Solutions) is our MGA platform specializing in the E&S Builder’s Risk market.
International Bond & Marine Brokerage is our MGA platform that underwrites Surety and Ocean Marine.
Specialty Insurance industry in the US
•
In 2022, the US specialty insurance market accounted for approximately 46%, or more than US$188 billion, of the total commercial P&C
insurance market.
•
•
•
The US commercial specialty insurance industry is fragmented, with the largest player capturing less than 7% market share in 2022. 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 agency channel (independent agencies, brokers, wholesalers and MGAs) is the primary distribution channel for specialty insurance
products.
Insurance companies are subject to regulation and supervision in each of the states where they are domiciled and licensed to conduct
business. The state insurance regulators are supported by the National Association of Insurance Commissioners (NAIC), which establishes
standards and best practices, as well as assists state insurance regulators in monitoring the financial condition of insurance companies.
2023 Operating DPW 1
by business unit
2023 Operating DPW 1
by type of coverage
2023 Operating DPW 1
by distribution channel
Surety
15%
Other⁴ 7%
Cyber² 6%
Ocean
Marine and
Inland Marine
15%
Accident
& Health
12%
US$2.1B
Specialty
Property
12%
Property
30%
Other 3%
US$2.1B
Technology
10%
Tuition
Reimb.
6%
E&S
Builder's
Risk²
7%
Financial
& Mgmt.
Liab.³
10%
Cyber 7%
Tuition
6%
Occ/Acc
& Worker
comp.
9%
Auto
8%
Ocean
Marine
7%
Surety
15%
Liability
(non-Auto)
15%
MGAs
24%
US$2.1B
Brokers
76%
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 Cyber and E&S Builder’s Risk each account for 2% of our portfolio, net of ceded premiums.
3 Includes Management Liability, Financial Institutions and Financial Services.
4 Includes Entertainment, Environmental, and Other.
INTACT FINANCIAL CORPORATION 19
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
7.1 P&C US
Table 10 – Underwriting results for P&C US1
Operating DPW
Growth in constant currency
Operating net underwriting revenue
Growth in constant currency
Underwriting income
Underlying current year loss ratio
CAT loss ratio
Unfavourable (favourable) PYD ratio
Claims ratio
Commissions
General expenses
Premium taxes
Expense ratio
Operating combined ratio
Q4-2023
Q4-2022
Restated
Change
616
590
80
44.4%
3.0%
2.9%
50.3%
16.6%
17.5%
2.0%
36.1%
86.4%
565
546
83
49.0%
0.1%
1.1%
50.2%
16.4%
16.1%
2.0%
34.5%
84.7%
9%
9%
8%
7%
(4)%
(4.6) pts
2.9 pts
1.8 pts
0.1 pts
0.2 pts
1.4 pts
- pts
1.6 pts
1.7 pts
2023
2,773
2022
Restated
2,346
2,114
1,866
239
47.8%
3.0%
(1.0)%
49.8%
18.1%
18.9%
1.9%
38.9%
88.7%
228
50.3%
1.5%
(1.4)%
50.4%
17.4%
18.0%
2.0%
37.4%
87.8%
Change
18%
14%
13%
9%
5%
(2.5) pts
1.5 pts
0.4 pts
(0.6) pts
0.7 pts
0.9 pts
(0.1) pts
1.5 pts
0.9 pts
1 See Section 31 – Non-GAAP and other financial measures and Section 13.2 – Income (loss) from exited lines for more details.
Q4-2023 vs Q4-2022
2023 vs 2022
• Operating DPW growth in constant currency of 9%
• Operating DPW growth in constant currency was
was led by strong growth across several lines of business,
with robust rate increases in Specialty Property and a
strong Surety market.
strong at 14%, reflecting a 6-point contribution from our
entry into the E&S builder’s risk market, as well as
continued focus on rates across most lines of business.
•
Full-year operating net underwriting revenue growth is lower than our full-year operating DPW growth, due to high
reinsurance cessions on newer and high-growth products, including cyber and builders’ risk.
• Strong underlying current year loss ratio of 44.4%
improved 4.6 points compared to last year, benefitting from
higher earned rates and a favourable business mix.
• Elevated CAT loss ratio of 3.0% was attributable to a
large non-weather claim.
• Strong underlying current year loss ratio improved 2.5
points to 47.8%, driven by a favourable business mix and
the benefits of higher earned rates generally outpacing
loss trends.
• CAT loss ratio of 3.0% was higher than last year,
primarily due to non-weather-related losses.
• Unfavourable PYD ratio of 2.9% was driven by adverse
development relating to a single large claim, offsetting
otherwise favourable development across multiple
business units.
•
Favourable PYD ratio was healthy at 1.0%, and largely
in line with last year, driven by positive development on
prior year losses across most of the portfolio throughout
2023.
• Expense ratio of 36.1% increased 1.6 points, driven by
variable compensation, as well as investments in
operations to support growth.
• Expense ratio of 38.9% increased 1.5 points from the
prior year due to higher commissions on our more
profitable business lines as well as increased investments
to support growth.
• Combined ratios of 86.4% in the quarter and of 88.7% for the year were strong, driven by continued growth in profitable
business lines and underwriting discipline. We are well positioned to maintain a low 90s or better combined ratio, going
forward.
20 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 8 - Corporate and other
Corporate and Other
Consists of income and expenses related to activities managed centrally at the Corporate level, including:
• Corporate underwriting income, which includes earned premiums from certain internal reinsurance treaties as well as the
impact of discount build on our claims liabilities for all P&C segments;
Investment management activities (see Section 11 – Investment performance);
Treasury and capital management (see Section 24 – Capital management); and
•
•
• Other corporate activities related to the operation of the group and our public company status. These group functions
include group legal, finance, investor relations, corporate development, strategy and other head office responsibilities.
8.1 Corporate operating results
Table 11 – Corporate and other1
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
Corporate underwriting2
Discount build on claims liabilities
Corporate underwriting income
Operating net investment income
Net unwind of discount on claims liabilities
Operating net investment result
(3)
270
267
376
(217)
159
4
140
144
279
(117)
162
(7)
130
123
97
(100)
(3)
20
948
968
1,346
(884)
462
17
466
483
927
(378)
549
Total finance costs
Other operating income (expense)3
Total corporate and other
(59)
(45)
322
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 Includes interest expense on contracts collateral as of Q4-2023.
3 Other operating income (expense) can fluctuate from quarter to quarter and includes intersegment adjustments as well as other operating items.
(222)
(157)
1,051
(9)
(7)
104
(50)
(38)
218
(177)
(163)
692
3
482
485
419
(506)
(87)
(45)
6
359
Q4-2023 vs Q4-2022
2023 vs 2022
• Corporate underwriting income was $267 million for the quarter and $968 million for the year, reflecting a higher
discount build on claims liabilities due to higher interest rates compared to last year.
• Operating net investment result was $159 million for the quarter and $462 million for the year, as investment income
benefitted from higher book yields, while the unwind of discount on claims liabilities remained relatively stable throughout the
year.
•
Total finance costs of $59 million for the quarter and $222 million for the year were higher than last year, driven by
additional financing required to fund strategic initiatives throughout the year, as well as the impact of higher interest rates on
short-term debt.
• Other operating expenses of $45 million for the quarter and $157 million for the year were higher than expectations
due to timing of intersegment eliminations between our underwriting and distribution businesses, while our corporate
expenses remained relatively stable.
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
8.2 Discounted combined ratios by segment and line of business
We have provided undiscounted and discounted combined ratios by line of business below. When assessing our performance versus
our competitors, it is important to compare combined ratios on a similar basis of calculation.
Table 12 – Discounted & undiscounted combined ratios by segment and by lines of business1
By segment
P&C Canada
Personal auto
Personal property
Commercial lines
P&C UK&I
P&C US
Combined ratio
Q4-2023
Q4-2022
2023
2022
Undisc.
Disc.
Undisc.
Disc.2
Undisc.
Disc.
Undisc.
Disc.2
95.2%
75.8%
84.4%
86.7%
104.6%
86.4%
90.1%
89.4%
74.6%
78.5%
82.0%
98.6%
80.0%
85.0%
93.5%
76.5%
89.1%
87.6%
116.4%
84.7%
93.2%
88.3%
75.4%
83.7%
83.4%
114.6%
80.3%
90.4%
94.7%
100.7%
89.3%
94.5%
96.4%
88.7%
94.2%
89.7%
98.8%
83.8%
90.1%
91.0%
83.8%
89.5%
93.2%
89.2%
87.2%
90.2%
99.3%
87.8%
91.8%
89.1%
88.1%
82.5%
86.6%
97.2%
84.4%
89.4%
1See Section 31 – Non-GAAP and other financial measures for more details.
2 Included an adjustment of the discount build in the transition year within Corporate. See Section 31.4 – Non-operating results for more details.
2023 vs. 2022
• Our segments and lines of business in Sections 5 to 7 are presented on an undiscounted basis, in line with how we
manage our business. We provided discounted combined ratios in the table above as additional information.
•
The impact of discounting varies by line of business and is impacted by the duration of claims in that particular line. For example,
commercial lines across all segments (including specialty lines) and Canada personal auto tend to have longer-tail exposures
compared to Canada personal property, and therefore the impact of discounting is more pronounced in these lines.
Net impact of the discount build / unwind
Table 13 - Net impact of discount build and unwind
Discount build on claims liabilities
Net unwind of discount on claims liabilities
Total net impact
Q4-2023
270
(217)
53
Q4-2022
Restated1
140
(117)
23
Change
2023
130
(100)
30
948
(884)
64
2022
Restated1
466
(378)
88
Change
482
(506)
(24)
1 Included an adjustment of the discount build in the transition year within Corporate. See Section 31.4 – Non-operating results for more details.
Q4-2023 vs Q4-2022
• Total favourable net impact of $53 million primarily
reflected an increased duration of expected payment for
certain claim liabilities, in addition to the impact of higher
interest rates, which only decreased towards the end of
the quarter.
2023 vs 2022
• Total favourable net impact of $64 million was driven
by rising interest rates throughout most of the year, as well
as a duration increase in Q4-2023.
•
2023 reminder: the net unwind on prior year claims is largely calculated based on discount rates fixed at the beginning of
the year, while the discount build on current year claims uses the average yield on a year-to-date basis. While the unwind is
relatively stable quarter on quarter within the year, the discount build is impacted by the volatility in interest rates, and
therefore these two components may not perfectly offset.
22 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 9 - Prior year claims development
Favourable PYD ratio (2014-23)1
%
3
.
6
%
0
.
5
%
9
.
4
%
8
.
2
%
9
.
1
%
0
.
0
%
9
.
0
%
8
.
3
2014
2021
2014 2015 2016 2017 2018 2019 2020 2021
2020
2017
2016
2018
2015
2019
IFRS 4 basis
•
•
PYD can fluctuate from quarter to
quarter and year
to year and,
therefore, should be evaluated over
longer periods of time.
Favourable claims development has
averaged 3.5% over the last 10-year
period.
%
8
.
4
%
7
.
4
2022
2023
IFRS 17 basis
1 PYD as a percentage of Net underwriting revenue in 2023 and 2022, and as a percentage of Net earned premiums for 2021 and prior.
9.1 PYD guidance
• We expect average favourable PYD as a percentage of operating net underwriting revenue to be in the 2 - 4% range in the
mid-term, on a consolidated view of our continuing business. The impact of PYD can vary across our different lines of business
and segments.
• PYD can fluctuate from quarter to quarter and year to year and, therefore, should be evaluated over longer periods of time.
9.2 PYD ratio by segment
Table 14 – Net (favourable) unfavourable PYD ratio by segment1
P&C Canada
Personal auto
Personal property
Commercial lines
P&C UK&I
P&C US
Total segments PYD2
Impact of discount build on PYD3
Consolidated
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
(5.9)%
(1.7)%
(7.5)%
(5.3)%
(6.0)%
2.9%
(4.5)%
(0.7)%
(5.2)%
(10.6)%
(2.0)%
(4.1)%
(6.2)%
(1.9)%
1.1%
(4.5)%
(0.1)%
(4.6)%
4.7 pts
0.3 pts
(3.4) pts
0.9 pts
(4.1) pts
1.8 pts
- pts
(0.6) pts
(0.6) pts
(6.5)%
(0.3)%
(7.5)%
(5.2)%
(2.1)%
(1.0)%
(4.1)%
(0.6)%
(4.7)%
(6.5)%
(2.5)%
(6.7)%
(5.5)%
(3.2)%
(1.4)%
(4.6)%
(0.2)%
(4.8)%
- pts
2.2 pts
(0.8) pts
0.3 pts
1.1 pts
0.4 pts
0.5 pts
(0.4) pts
0.1 pts
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 Includes the impact of PYD on corporate reinsurance.
3 Includes the impact of discount build on claims liabilities across all P&C segments.
•
Favourable PYD ratio remained strong at 5.2% for the
quarter, despite unfavourable PYD in the US which was
driven by adverse development on a single large claim.
•
Favourable PYD ratio of 4.7% for the year was strong and
in line with last year, driven by healthy PYD across all
segments.
2023 Highlights
INTACT FINANCIAL CORPORATION 23
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 10 - CAT losses and Seasonality
10.1 Net CAT losses
Table 15 – Net CAT losses by segment1
By segment
P&C Canada
P&C UK&I
P&C US
Current year CAT losses2
Consolidated (favourable) unfavourable PYD on CAT losses3
All accident year CAT losses
Current year CAT loss ratio
P&C Canada
P&C UK&I
P&C US
Consolidated
Exited lines
Current year losses from reported CATs
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
29
152
18
199
(17)
182
80
90
1
171
(10)
161
(51)
62
17
28
(7)
21
0.8%
15.0%
3.0%
3.8%
2.3%
8.7%
0.1%
3.4%
(1.5) pts
6.3 pts
2.9 pts
0.4 pts
1,058
217
64
1,339
(11)
1,328
7.5%
5.2%
3.0%
6.6%
561
246
29
836
(33)
803
497
(29)
35
503
22
525
4.1%
6.0%
1.5%
4.3%
3.4 pts
(0.8) pts
1.5 pts
2.3 pts
65
1
64
65
3
62
1See Section 31 – Non-GAAP and other financial measures for more details.
2 Including reinstatement premiums. CAT losses are reported on an undiscounted basis, in line with how we present our business segments.
3 PYD on CAT losses is presented within our PYD captions and ratios.
Q4-2023 highlights
• We reported current year CAT losses of $199 million
(CAT loss ratio of 3.8%), above our expectations within the
UK&I, driven by two severe windstorms in the UK and
Europe, Storms Ciaran and Babet.
These severe windstorms also impacted our exited UK
of
operations
home
$65 million in Q4-2023. These would have been considered
CAT losses had they been reported within our continuing
business.
insurance
losses
with
•
2023 highlights
• We reported current year CAT losses of $1,339 million
(CAT loss ratio of 6.6%), well above expectations, driven
by a multitude of weather events this year. Most of the losses
were in our Canadian segment and attributable to multiple
hailstorms, thunderstorms, and wildfires.
• We generally seek to manage our exposure to CAT losses at the company level, through individual risk selection and the
purchase of reinsurance contracts. Although we have a comprehensive catastrophe reinsurance program in place, no individual
catastrophe event reached our reinsurance retention threshold in 2023. Our catastrophe treaties are primarily designed as a
capital safeguard against catastrophic events and are not intended to manage quarter to quarter volatility. As such, only four
CAT events4 in the past 10 years have reached the retention thresholds of our current corporate CAT treaty.
4 The four events that have reached our retention thresholds of our current corporate CAT treaty include: Calgary floods (2013), Toronto Floods (2013), Fort McMurray
wildfire (2016) and Derecho (2022).
24 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
CAT losses ($ million)
Quarterly CAT loss ratio
Historical view of consolidated CAT losses1
Rolling 12-month average CAT loss ratio
Rolling 12-month average CAT loss ratio 90th percentile
Rolling 12-month average CAT loss ratio 10th percentile
15.5%
6.9%
9.4%
8.1%
5.8%
7.5%
8.4%
600
500
400
300
200
6.4%
100
2.3%
0
20.0%
15.0%
11.7%
10.0%
6.5%
5.0%
0.0%
3
1
-
1
Q
3
1
-
2
Q
3
1
-
3
Q
3
1
-
4
Q
4
1
-
1
Q
4
1
-
2
Q
4
1
-
3
Q
4
1
-
4
Q
5
1
-
1
Q
5
1
-
2
Q
5
1
-
3
Q
5
1
-
4
Q
6
1
-
1
Q
6
1
-
2
Q
6
1
-
3
Q
6
1
-
4
Q
7
1
-
1
Q
7
1
-
2
Q
7
1
-
3
Q
7
1
-
4
Q
8
1
-
1
Q
8
1
-
2
Q
8
1
-
3
Q
8
1
-
4
Q
9
1
-
1
Q
9
1
-
2
Q
9
1
-
3
Q
9
1
-
4
Q
0
2
-
1
Q
0
2
-
2
Q
0
2
-
3
Q
0
2
-
4
Q
1
2
-
1
Q
1
2
-
2
Q
1
2
-
3
Q
1
2
-
4
Q
2
2
-
1
Q
2
2
-
2
Q
2
2
-
3
Q
2
2
-
4
Q
3
2
-
1
Q
3
2
-
2
Q
3
2
-
3
Q
3
2
-
4
Q
1 2023 and 2022 CAT loss ratios are presented on an IFRS 17 basis (using Operating net underwriting revenue) whereas previous years’ CAT loss ratios are presented
on an IFRS 4 basis (using Operating net earned premiums). See Section 31 – Non-GAAP and other financial measures.
Evolution of consolidated 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).
•
Though this year was subject to an elevated level of catastrophe losses, the quarterly volatility seen in 2023 was not unprecedented.
Looking at our historical data, past quarters have seen CAT loss ratios with elevated peaks, such as those attributable to th e Fort
McMurray wildfire in 2016, as well as the Calgary and Toronto floods in 2013.
• Our rolling 12-month average CAT loss ratio has remained relatively stable over time, largely within the range of 4%, showing that the
upward trend in catastrophe losses on a dollar basis in recent periods has been proportional to the growth in our premium base. While
climate change has impacted the frequency and intensity of weather events, we have responded with pricing, risk selection, product,
claims and supply chain actions.
• Our personal property business has shown long-term resiliency with an average combined ratio below 90% in the last 10 years and our
rolling 12-month combined ratio breaching the 95% threshold only in two instances: following the 2013 events and this year.
•
As a P&C insurer, assuming physical risk for our customers is our business. Our primary focus is on resilience and protection at both
the individual level and the community level. Climate change presents an opportunity for IFC to both help society and win in the
marketplace with innovative products and services.
10.2 CAT guidance
• Our guidance for 2024 will be based on a CAT loss ratio of 4.3%. On a dollar basis, this represents $900 million of CAT losses (on a
continuing basis, net of reinsurance), up from our previous guidance of $700 million. The revised estimate reflects recent experience,
our view of long-term climate trends, on-going inflation, our growing premium base (including our recent DLG brokered commercial
lines acquisition and excluding UK Personal Lines) and the latest impact of reinsurance renewals. The revised estimate does not
reduce our profitability expectations as the increase in CAT losses is embedded within our pricing actions, increasing our earned
premiums.
•
Though volatility is inherent, we expect that approximately 70% of CAT losses will impact our Canadian segment (of which
approximately 60% 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. 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).
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
10.3 Seasonality of our P&C insurance business
The P&C insurance business is seasonal in nature. While net underwriting revenue is generally stable from quarter to quarter,
underwriting results are driven by weather conditions which may vary significantly between quarters.
Seasonality indicators are attributable to the variance in quarterly results with respect to the corresponding full-year combined ratio
excluding CATs. The indicators are expressed in points of combined ratio, where a higher seasonality indicator indicates a relatively
less profitable underwriting result.
P&C Canada
Table 16 – Unfavourable (favourable) seasonal indicators – P&C Canada1
5-yr
average
P&C Canada
4.1 pts
Q1
(0.2) pts
Q2
(1.0) pts
Q3
(2.9) pts
Q4
1 2023 and 2022 are based on restated underwriting results following the adoption of IFRS 17, whereas prior years are on under the IFRS 4 basis.
3-yr
average
3.3 pts
(0.9) pts
(0.8) pts
(1.7) pts
2023
2.2 pts
1.4 pts
(2.3) pts
(1.3) pts
2021
4.4 pts
(0.8) pts
(0.8) pts
(2.9) pts
2022
3.3 pts
(3.2) pts
0.8 pts
(0.9) pts
2020
5.2 pts
(1.0) pts
0.1 pts
(4.3) pts
10-yr
average
3.9 pts
(0.2) pts
(1.6) pts
(2.0) pts
Highlights
At the P&C level, Q1 usually sees a higher combined ratio compared to other quarters, driven by harsh winter weather conditions
impacting our personal lines of business.
By line of business, seasonality indicators present differing trends:
•
•
Personal auto tends to have a pronounced unfavourable seasonal indicator in Q1, whereas seasonally favourable in Q2.
Personal property tends to have a strong favourable trend in Q4.
P&C UK&I and US
In the US and UK&I, the expected impact of seasonality is relatively limited when excluding CATs, given that there is a higher
concentration in commercial lines and relatively milder winter weather.
26 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 11 - Investment performance
11.1 Operating net investment result
Table 17 – Operating net investment result
Interest income
Dividend income
Investment property rental income
Operating investment income
Investment expenses
Operating net investment income1
Net unwind of discount on claims liabilities1
Operating net investment result1
Average investments2
Market-based yield3
Q4-2023
307
75
7
389
(13)
376
(217)
159
Q4-2022
Restated
Change
2023
2022
Restated
Change
210
74
5
289
(10)
279
(117)
162
97
1
2
100
(3)
97
(100)
(3)
4%
1,038
327
23
1,388
(42)
1,346
(884)
462
634
305
23
962
(35)
927
(378)
549
35,958
35,037
404
22
-
426
(7)
419
(506)
(87)
3%
36,781
35,343
4.32%
3.32%
100 bps
3.94%
2.78%
116 bps
1 See Section 31 – 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 operating investment income (before expenses), divided by the weighted-average investments.
Q4-2023 vs Q4-2022
• Operating net investment income increased by 35% to
$376 million driven higher book yields and increased
turnover of our portfolio over the last 12 months.
2023 vs 2022
• Operating net investment income increased by 45% to
$1,346 million driven by the benefits of rising yields and
increased turnover of our portfolio over the last 12 months.
• As at December 31, 2023, the reinvestment yield declined to 4.3% but still exceeded our book yield of 3.5%.
•
The net unwind of discount on claims liabilities of $(217) million for the quarter and $(884) million for the year
increased significantly compared to last year, driven by higher discount rates.
• Overall, the operating net investment result of $159 million for Q4-2023 increased from the preceding quarter. Investment
income captured the benefits of higher book yields, while the net unwind remained relatively stable, as it is calculated based
on discount rates fixed at the beginning of the year.
• Average investments increased 4% compared to
Q4-2022, reflecting primarily cash inflows from operations.
• Average investments increased 3% compared to 2022,
reflecting primarily cash inflows from operations, tempered
by the negative mark-to-market from higher interest rates
throughout most of 2023.
• Market-based yield increased by 100 bps to 4.32%
compared to Q4-2022, reflecting increased investment
income driven by higher book yields and increased
turnover of our portfolio, while average investments slightly
increased.
• Market-based yield increased by 116 bps to 3.94% for
the year, reflecting increased investment income driven by
higher book yields captured through increased turnover of
our portfolio as well as a special dividend in Q2-2023, while
average investments slightly increased.
INTACT FINANCIAL CORPORATION 27
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 12 - Distribution income
Distribution income
We have broker relationships across Canada, the US, the UK and Europe for customers who value advice from 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. Our
strategy is to increase scale in distribution and to be a preferred partner by supporting brokers in their growth and
profitability ambitions.
Distribution income is reported on an earnings before interest, tax and amortization basis (“EBITDA”), 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 as well as On Side Restoration (“On Side”).
• BrokerLink is a distributor of P&C products in Canada, with over $3.5 billion of annual DPW. In
2023, BrokerLink completed 20 acquisitions totalling $375 million in premiums.
• Broker Financial Solutions (“BFS”) offers financial support and advice to our network of brokers, in
areas such as succession planning, growth, and profitability improvement. This network accounts for over $3 billion of Intact
written premiums.
• Our managing general agent (MGA) platform is composed of the following:
o
Intact Public Entities, the MGA platform distributing public entity insurance products in
Canada;
o Coast Underwriters, the MGA platform distributing Marine Insurance;
o Striior Insurance Solutions (formerly Highland Insurance Solutions), the MGA platform specializing in the E&S
Builder’s Risk segment in the US.
• 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, enabling us to be faster in our response and ensure the quality of repairs, while being more
efficient on costs.
Having a meaningful distribution business differentiates our balance sheet and earnings from other insurers:
•
If we allocate debt to our distribution business in line with the brokerage industry comparables, the adjusted debt-to-capital
ratio of our P&C business would be approximately 3.5 points1 lower.
• Approximately 25% of our intangible assets and goodwill are attributable to our distribution business.
• Distribution income covers approximately 1.5x our total annual interest charges and preferred share dividends.
• Distribution income provides a strong, dependable and diversified source of earnings supporting our ROE outperformance
objective with approximately 2-point2 contribution to our OROE.
1 All debt outstanding is held & managed at the Holding Company level. Debt was allocated to reach a debt / LTM EBITDA multiple of approximately 2.5.
2 Calculated using Distribution income, after-tax and after allocated finance costs, divided by IFC’s Adjusted average common shareholder’s equity (excl. AOCI).
Distribution income by source
BrokerLink
BFS
Other¹
37%
44%
19%
Highlights
Distribution income increased by 16% to $109 million for
the quarter, mainly driven by BrokerLink’s recent
acquisitions paired with solid organic growth.
Distribution income increased by 6% to
$467 million for the year, reflecting a slow pace of
acquisitions in the first half of the year as well as lower
variable commissions compared to last year’s strong level.
In 2024, we expect distribution income growth of at
least 10%.
BrokerLink topline (DPW)
Intact
Other
48%
52%
1 Other includes Intact Public Entities, On Side, Coast Underwriters, Striior and other.
28 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 13 - 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 net operating income and
related financial measures.
Table 18 – Non-operating results1
Net gains (losses) on FVTPL bonds and FX3
MYA and FX on claims liabilities4
Net gains (losses) excluding FVTPL bonds (Table 19)
Other net gains, including sale of Codan Denmark
Income (loss) from exited lines (Table 20)
Restructuring costs
Amortization of acquired intangible assets (Table 52)
Acquisition and integration costs
Net result from claims acquired in a business
combination
Other
Q4-2023 Q4-2022
Restated2
Change
2023
2022
Restated2
Change
388
(354)
144
22
(158)
(96)
(74)
(86)
(1)
10
54
82
(193)
38
(35)
(23)
(66)
(61)
(1)
(16)
334
(436)
337
(16)
(123)
(73)
(8)
(25)
-
26
271
(62)
(22)
50
(313)
(248)
(270)
(255)
(3)
23
(862)
973
536
477
(126)
(59)
(254)
(294)
(5)
(45)
1,133
(1,035)
(558)
(427)
(187)
(189)
(16)
39
2
68
Non-operating results
16
1 See Section 31 – Non-GAAP and other financial measures for the after-tax impacts and non-operating NCI component.
2 Comparative figures are only restated for IFRS 17, not for IFRS 9.
3 Includes realized and unrealized gains and losses on our FVTPL bonds, as well as $(42) million of foreign currency gains (losses) on our bonds for the quarter, and $(55)
(221)
(205)
(829)
341
(1,170)
million for the year.
4 Represents the change in rates used to discount our claims liabilities and the foreign currency translation impact on claims.
Q4-2023 vs Q4-2022
• Net gains on FVTPL bonds and FX of $388 million, driven
by decreases in interest rates in Canada, the US and the UK
(see Section 21.2 – Capital market update).
2023 vs 2022
• Net gains on FVTPL bonds and FX were $271 million,
reflecting decreases in interest rates compared to the
beginning of the year, primarily led by movements in Q4.
• MYA and FX loss on claims liabilities of $354 million,
driven by the decrease in interest rates in all geographies.
• MYA and FX loss on claims liabilities of $62 million,
driven by the interest rates movements described above.
• Net gains excluding FVTPL bonds of $144 million
reflected a rebound of equity markets.
• Other net gains of $22 million were broadly comparable to
last year and included certain gains on distribution.
• Net losses excluding FVTPL bonds of $22 million,
included net foreign currency losses in the UK&I, partly offset
by overall mark-to-market gains on our equity securities.
• Other net gains of $50 million were lower than the
comparable period due to the sale of Codan Denmark in
2022.
•
Losses from exited lines of $158 million in the quarter and $313 million for the year have deteriorated year-over-year, mainly
due to our UK motor exit in Q1-2023 and our UK home and pet exits in Q4-2023 (see Section 13.2 – Income (loss) from exited
lines).
• Restructuring costs of $96 million reflected costs mainly
related to the exit from the UK Personal Lines market, the
majority of which is non-cash.
• Restructuring costs of $248 million, in large part driven by
write-off of assets related to the exited UK Personal Lines
market (motor, home and pet).
• Restructuring costs related to our UK strategic exits are expected to be incurred over the next 3 years. Proceeds from the sale of
our UK direct Home and Pet operations are expected to be received in H1-2024 and will mostly offset these costs in 2024.
INTACT FINANCIAL CORPORATION 29
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
13.1 Net gains (losses) excluding FVTPL bonds
Table 19 – Net gains (losses) excluding FVTPL bonds1
Realized and unrealized gains (losses) on:
FVTOCI bonds, net of derivatives
Equity securities, net of derivatives
Embedded derivatives
Investment property
Other net foreign currency gains (losses)
Impairment losses
Other2
Net gains (losses) excluding FVTPL bonds
Q4-2023 Q4-2022
Change
2023
2022 Change
4
156
-
(11)
(3)
-
(2)
144
(37)
51
17
(56)
(131)
(37)
-
(193)
41
105
(17)
45
128
37
(2)
337
1
36
-
(14)
(41)
-
(4)
(22)
(49)
437
71
(17)
177
(83)
-
536
50
(401)
(71)
3
(218)
83
(4)
(558)
1 See Note 24 – Net investment return and net insurance financial result to the Consolidated financial statements for details.
2 Includes $2 million of losses in Q4-2023 relating to the expected credit loss model ($4 million of losses for the year-ended December 31, 2023).
Q4-2023 vs Q4-2022
Net gains excluding FVTPL bonds of $144 million reflected a
rebound of equity markets (see Section 21.2 – Capital market
update).
2023 vs 2022
Net losses excluding FVTPL bonds of $22 million, reflected
•
net foreign currency losses in the UK&I driven by a strong
GBP compared to CAD, USD and EUR;
• market-related losses on certain investment properties;
•
partly offset by overall gains on our equity securities, driven
by the favourable market movements in Q4.
13.2
Income (loss) from exited lines
Lines are classified as exited once we have made 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
discounted underwriting results and net investment income from the exit and sale of RSA Middle East. Comparative year was not
restated to exclude the exited lines results.
Canada
UK&I
US
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.
This includes the legacy exits of the
UK&I portfolio, the sale of RSA
Middle East in 2022 as well as the exit
of the UK Personal Lines Motor
portfolio as of Q1-2023. Effective Q4-
2023, we exited the UK Home and
Pet businesses following a strategic
review of operations with a decision
to focus on areas where we have
scale and an ability to outperform.
in Q4-2017),
We have exited the Programs,
Architects and Engineers business
(effective
the
Healthcare business (effective Q3-
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.
30 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Table 20 – Income (loss) from exited lines1
DPW
Net underwriting revenue
Net claims
Net underwriting expenses
Underwriting income (loss)
Net investment income – Middle East operations
Income (loss) from exited lines
Canada
UK&I
US
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
366
346
(359)
(145)
(158)
-
(158)
(5)
(138)
(15)
5
49
(61)
(23)
(35)
-
(35)
6
(7)
(34)
361
297
(298)
(122)
(123)
-
(123)
(11)
(131)
19
538
562
(614)
(261)
(313)
-
(313)
(6)
(250)
(57)
350
406
(353)
(183)
(130)
4
(126)
27
(42)
(111)
188
156
(261)
(78)
(183)
(4)
(187)
(33)
(208)
54
1 See Section 31 – Non-GAAP and other financial measures for more details.
Q4-2023 highlights
2023 highlights
• Underwriting losses of $138 million in the quarter,
essentially fully attributable to our UK personal lines
exits.
• Storms Babet and Ciaran in the UK and Europe drove
losses of approximately $65 million, which would
have been considered catastrophe losses if these
were reported within our continuing business.
UK&I
• Results for the quarter also included prudent reserve
strengthening of approximately $70 million within the
UK Home business.
•
•
•
US
If exited lines were included within the UK&I segment,
this would have an unfavourable 9-point impact on
the overall UK&I combined ratio, or an unfavourable
4.2-point impact if we exclude the losses from the
above-mentioned storms.
The underwriting loss of $15 million for the quarter
was largely attributable to reserve strengthening
within the Healthcare business lines.
If exited lines were included within the US segment,
this would have an unfavourable 2.4-point impact on
the overall US combined ratio.
• Underwriting losses of $250 million in 2023 were
largely attributable to our UK personal lines exited
during the year, including the Motor exit in Q1-2023
and the Home and Pet exit in Q4-2023. Weather
events also generated significant losses in Q4-2023.
•
If exited lines were included within the UK&I segment,
this would have an unfavourable 5.8-point impact on
the overall UK&I combined ratio.
• We expect approximately £680 million of annual
premiums to primarily run off starting in mid-2024, with
a remaining £140 million to run off in mid-2025.
•
•
•
In 2024 and beyond, we expect to run our exited
portfolios at a total combined ratio of 100% or better,
assuming expected levels of weather-related claims,
as we continue to push double digit rate increases.
The underwriting loss of $57 million for the year was
largely attributable to adverse PYD in the exited
Healthcare businesses as well as Architects and
Engineers, with minimal impact from Public Entities.
If exited lines were included within the US segment,
this would have an unfavourable 2.7-point impact on
the overall US combined ratio.
We are continuously monitoring these lines of business, ensuring our reserves estimates are reasonable and include a suitable
level of prudence.
INTACT FINANCIAL CORPORATION 31
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 14 - Income taxes
14.1 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,
2023
2022
Canada1
UK
US
Corporate2
26.3%
23.5%
21.0%
25.9%
26.4%
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
•
•
In 2023, the Canadian federal government introduced Bill C-59 to implement certain tax measures that were announced in the
2023 Federal Budget and Fall Economic Statement. Although the legislation is not yet enacted, the key tax measures that could
impact us are as follows:
o Deny financial institutions a deduction on dividends on certain types of portfolio shares of Canadian corporations that
they own (other than taxable preferred share). If enacted, this tax measure would increase our operating effective
income tax rate (“operating ETR”) by approximatively 1 point based on our investment portfolio mix.
o
Implement a tax of 2% on the net value of share repurchase transactions undertaken by public corporations. We do
not expect a material impact from this tax measure.
The government also intends to move forward with the adoption of the Organization for Economic Co-operation and
Development’s Pillar Two rules. The rules are designed to ensure that large multinational enterprises pay a minimum effective
corporate tax rate (currently agreed upon at 15%) on the income arising in each jurisdiction where they operate. Canada has
drafted legislation to adopt Pillar Two however it is currently not enacted. If the legislation is enacted in its current form, it would
be effective January 1, 2024. Based on our assessment, the Company’s substantial operations are in jurisdictions with Pillar
Two effective tax rates that are not less than 15%. We therefore expect the impact of Pillar Two to be limited on our operating
ETR.
14.2 Effective income tax rates
Our effective income tax rates (“ETR”), operating and total, are different from our combined Canadian federal and provincial statutory
income tax rate. The following table presents the reconciliation of our operating ETR to the income tax expense calculated at the
Corporate statutory tax rate.
Table 22 – Operating effective income tax rate reconciliation1
As at December 31,
Corporate statutory income tax rate (Table 21)
Adjustment for different rates of other jurisdictions (mainly US and UK)
Non-taxable investment income (mainly composed of dividends)
Utilization and recognition of previously unrecognized tax benefits (Section 14.3)
Other
Operating effective income tax rate, as reported in MD&A
1 Impact calculated on the basis of pre-tax operating income.
2023
25.9%
(1.5)%
(3.4)%
(2.9)%
0.9%
19.0%
2022
Restated
25.9%
(0.9)%
(2.4)%
(2.9)%
(0.1)%
19.6%
2023 vs 2022
Operating ETR of 19.0% was lower than last year, due to a higher proportion of non-taxable investment returns. As per last year,
we also benefitted from the recognition of additional deferred tax assets as a result of our improved outlook on future profitability in
the UK.
32 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
The following table presents the reconciliation of our total ETR to the income tax expense calculated at the Corporate statutory tax rate.
Table 23 – Effective income tax rate reconciliation1
As at December 31,
Corporate statutory income tax rate (Table 21)
Increase (decrease) in income tax rates resulting from:
Adjustments on operating income
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 IFRS3
2023
25.9%
(10.0)%
11.7%
27.6%
(1.4)%
26.2%
2022
Restated
25.9%
(5.7)%
(0.7)%
19.5%
(1.0)%
18.5%
1 Impact calculated on the basis of pre-tax income.
2 Includes income taxes from our broker associates, which are accounted for using the equity method (net of tax) under IFRS.
3 Refer to Note 28 – Income taxes to the Consolidated Financial Statements for further details.
2023 vs 2022
Total ETR of 27.6% was higher than last year, as the aforementioned operating benefits were offset by a temporary increase in
non-operating income tax expense related to the UK pension buy-in transaction.
14.3 UK – recognition of deferred tax assets
In 2023, due to higher expected future profitability driven by strategic initiatives, synergies and increased investment income, we have
recognized additional deferred tax assets of £35 million in the UK. This resulted in a benefit of $59 million to operating taxes in Q4-
2023, a synergy reflecting in part our expectation to improve the performance of this business in the future.
14.4 UK - unrecognized tax losses and other tax attributes
The following table presents a summary of unrecognized tax losses and other tax attributes in the UK as at December 31, 2023.
Table 24 – Unrecognized tax losses and other tax attributes in the UK
As at December 31,
Tax losses P&L
Tax losses OCI
Other tax attributes
Total unrecognized tax losses and other tax attributes
Unrecognized UK deferred tax assets (at 25%)
Unrecognized tax losses and other
tax attributes
2022
1,263
1,581
353
3,197
799
2023
1,260
1,679
908
3,847
962
Recognition of UK tax benefits
•
•
As at December 31, 2023, we have $962 million of UK unrecognized deferred tax assets that can be used against potential future
taxable income and benefit our KPIs.
In 2023, the UK unrecognized tax assets have increased compared to prior year. This was predominately driven by the UK pension
buy-in transaction which created a new class of deferred tax asset within OCI, that has been recognized in priority to other tax attributes
available.
In addition to the above summary, we also have unrecognized tax losses in Canada, Ireland and in other jurisdictions, refer to Note 28.5 –
Unused tax losses, tax credits and other tax attributes to the Consolidated financial statements for further details.
C
•
•
The tax losses have arisen in both the P&L and in OCI. The recognition of these tax losses through the P&L would
lower operating ETR and total ETR. The recognition of these tax losses outside the P&L will not impact the ETR, but
their recognition will still generate book value benefits.
As the utilization of UK tax losses is limited to 50% of taxable profits, the recognition and utilization of other tax
attributes other than tax losses is prioritized. We will continue to identify opportunities where we can use these
unrecognized losses, including higher expected future profitability driven by strategic initiatives in the UK.
INTACT FINANCIAL CORPORATION 33
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
ENVIRONMENT & OUTLOOK
Section 15 - P&C insurance industry outlook
Summary
•
•
•
•
Over the next twelve months, we expect hard insurance market conditions to continue in most lines of business, driven by inflation
and catastrophe losses.
In Canada, both personal property and auto premiums are expected to grow by high single-digits.
In commercial and specialty lines across all geographies, we expect hard market conditions to continue in most lines of business,
with high single-digit premium growth on average.
As interest rates remain high, we expect the pre-tax investment yield for the industry to continue increasing as portfolios roll over.
P&C insurance industry
12-month outlook
Our response
• We estimate that in the first three quarters
of 2023, industry premiums grew by high
single-digits.
• Given low industry profitability relative to
recent years, as well as on-going severity
pressures, we expect industry corrective
measures to continue.
• We monitor inflation in our portfolio and adjust our pricing
and claims strategies to maintain control on indemnity. This
includes leveraging our strong supply chain network and in-
house legal capabilities.
• We continue to invest in telematics, big data, and artificial
intelligence to maintain our advantage in pricing and risk
selection.
Personal
Auto
Canada
• We expect industry premium growth to be in
the high single-digit range over the next
twelve months.
• Our brand investments, telematics offering, and customer
driven digital leadership contribute to accelerating growth in
the current hard market conditions.
•
Following the recent regulatory developments in Alberta, we
are actively working with the government and the industry to
find long-term solutions including a potential product reform.
We expect limited earnings impact in 2024.
• 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 and climate
trends within our portfolio
through pricing actions,
prevention, supply chain initiatives (e.g. expansion of On
Side Restoration) and the continued internalization of the
claims process.
• We are continuously adapting our products, and are well
positioned to protect profitability through rate actions in
supportive market conditions.
• We expect to achieve our objective of a 95% or better
combined ratio over the next twelve months, even with
severe weather.
• We estimate that industry premiums grew
by high single-digits in the first three
quarters of 2023.
• We expect hard market conditions to
persist as the industry responds to
challenging weather and inflation.
• We expect premium growth could reach a
the next
level over
low double-digit
12 months.
Personal
Property
Canada
34 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
• We estimate that the industry registered high
single-digit premium growth in the first three
quarters of 2023, reflecting continued rate
actions in hard market conditions.
• We expect upper single-digit premium growth for
the industry over the next 12 months, with
favourable market conditions underpinned by a
firm reinsurance market, elevated CAT losses,
and inflation pressures.
Commercial
lines
Canada
Our response
• We maintain our emphasis on portfolio quality and
pricing discipline, while remaining focused on loss
prevention and service excellence.
• We have adjusted and maintained our pricing and
automatic indexation for inflation factors to address
inflation.
• UK&I Commercial Lines market conditions are
broadly hard, with rate increases driven by a firm
reinsurance market and continued inflationary
pressures.
• We accelerated our path to sustainable outperformance
for the UK&I business by acquiring Direct Line’s
brokered commercial lines operations and exiting the
UK Personal Lines market.
UK&I
• We therefore expect the UK and EU commercial
industry premium rates to grow at a mid single-
digit level over the next 12 months.
• We remain disciplined on new business, prioritizing
quality and profitability. We continue to increase rates
to offset claims inflation, while also enhancing pricing
and segmentation capabilities.
The US commercial P&C market conditions
continue to be hard across most lines. For the
first three quarters of 2023, industry premiums
grew by mid-to-high single-digits, and we
estimate the industry combined ratio to be in the
mid-to-high 90s.
• 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.
•
US
Commercial
lines
•
Favourable market conditions are expected to
persist in the near term, given rising reinsurance
costs, elevated weather CAT losses, ongoing
inflation pressures, as well as geopolitical and
economic uncertainty.
• We expect industry premium growth at an upper
single-digit level over the next 12 months.
• We continue to execute on pricing actions across the
portfolio, achieving rate increases consistent with the
broader industry while maintaining retention levels in
line with expectations.
• We are well positioned to maintain a low 90s or better
combined ratio in line with our near-term objectives.
INTACT FINANCIAL CORPORATION 35
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
P&C insurance industry
12-month outlook
Our response
• Capital markets are expected to remain volatile
due to inflation trends, higher interest rates,
possibility of a recession and geopolitical
conflicts.
• Our investment portfolio is managed like the rest of
our business, for the long-term. Our investment
management
to maximize after-tax
returns, while preserving capital and limiting volatility.
team seeks
Investments
•
•
Interest rates remain high but could decrease in
2024. We expect
industry’s pre-tax
the
investment yield to increase as reinvestment
yields remain above book yields.
•
•
In the current environment, we have maintained
exposure to common shares below our long-term
target.
In 2024, we expect investment income to reach $1.5
billion, mainly reflecting actions taken in 2023 to
strengthen our book yield on fixed-income securities.
Inflation pressures and elevated catastrophe
losses continue to drive favourable insurance
market conditions across most lines of business.
• We continue to be disciplined on underwriting,
appropriately taking pricing actions to protect against
inflation pressures and climate trends.
Overall
• We expect our industry benchmark ROE1 to be in
the high single-digit range in the next 12 months.
• We continue to invest in our competitive advantages,
including data and AI, claims internalization and
supply chain, as well as in the expansion of our broker
distribution platform.
• We expect to outperform the industry ROE by at least
500 basis points in 2024.
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.
36 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
STRATEGY
Section 16 - What we are aiming to achieve
We are here to help people, businesses and society prosper in good times and be resilient in bad times. 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 p roud to work at
Intact, achieving outperformance, and being recognized as leaders in building resilient communities.
Progress on our strategic objectives
What we are aiming to achieve
Our progress as of 2023
Our customers are our ADVOCATES
• 71% of our personal lines customers who had a transaction with us are our advocates
• 82% of brokers in Canada, US and the UK value our specialized expertise
Our people are ENGAGED
• Kincentric Best Employer in Canada for the 8th consecutive year
• Kincentric Best Employer in US for the 5th consecutive year
• Progress towards Best Employer in the UK&I with a 6 point year-over-year improvement in
engagement
Our company is one of the
MOST RESPECTED
• We exceeded industry ROE by a yearly average of 6.9 points between 2013 and 20221
• Our NOIPS has grown at a 12% CAGR over the last decade
• 57%2 of stakeholders in Canada recognize us as leaders in building resilient communities
1 Our 2023 ROE outperformance metrics will be available in Q2 2024.
2 Measured by Ipsos, a market research company.
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 17 - Our strategic roadmap
Our strategic roadmap outlines how we will achieve our objectives. The following section highlights our progress on our strategic
roadmap and against key financial and non-financial measures.
Our strategic roadmap has been updated in light of the recent DLG brokered commercial lines acquisition and exit of the UK personal
lines market.
38 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
17.1 Progress on our strategic roadmap in 2023
Expand our leadership position in Canada
•
In 2023, our mobile apps saw over 23 million visits from customers. Our self-serve tools provide increased efficiency and
ease of use with one in five policy transactions completed online in 2023, up 23% from 2022.
•
In 2023, we made progress on our brands in Canada:
o Anthony Insurance and Johnson Insurance have been rebranded to belairdirect. With its strong brand awareness
and insurance.simplified proposition, belairdirect is well positioned for sustained growth with a product offering which
now includes group benefits and travel insurance.
o
Intact Insurance is the most recognized insurance brand in Canada. We’ve increased our brand awareness by
two points year-over-year, achieving one in three brand awareness.
• BrokerLink continued to expand its footprint in Canada by closing 20 acquisitions this year, bringing BrokerLink’s year-to-
date acquisition total to $375 million DPW. In 2023, BrokerLink surpassed $3.5 billion in annual DPW, putting us on track to hit
our goal of $5 billion DPW by 2025.
Strengthen our leading position in the UK & Ireland
• We continued to invest in the efficiency of the broker experience through enhancements to the online broker journey,
improved data quality and automation of underwriting workflows. We also expanded our SME and Mid-Market offering in
Commercial Lines. Our efforts have resulted in an increase in promoters scores and SME new business exceeding our target.
•
•
In Ireland, we saw strong customer and broker satisfaction throughout 2023. In direct distribution, 74% of our customers
are likely to recommend us and 73% of brokers value us for our people, expertise and product benefits.
In 2023, we took significant steps to optimize our UK footprint and enhance our position for outperformance:
o On March 28, IFC and RSA announced the exit from UK personal lines motor, representing a step in optimizing
our UK footprint around Commercial and Specialty lines of businesses.
o On October 26, we completed the purchase of DLG’s brokered commercial lines operations, expanding our
Commercial Lines offering in the UK.
o On December 7, we exited our UK direct Personal Lines business, with the sale of our UK direct Home and Pet
operations to Admiral Group plc expected to close in H1-2024. We also announced that we are exploring options to
transfer the Home and Pet partnerships to other parties or let them expire over time.
Build a Specialty Solutions leader
• We expanded our cyber underwriting capacity with Resilience, a cyber MGA, to all markets where we operate after
successful launches in the UK, Europe, and Canada. This expansion builds upon our global platform.
• Our pricing sophistication roadmap continues to progress with the deployment of six new predictive models in Q4-2023
and two currently being deployed. This enhances profitability and supports businesses in each of our geographies (US, Canada,
UK, Europe).
• We have rebranded our Builder’s Risk MGA to Striior Insurance Solutions (formerly Highland Insurance Solutions). This
refreshed distribution brand reflects the strong foundation Striior was built upon, the expertise of the team and the ambitious
goals of the group.
Transform our competitive advantages
• Use of machine learning pricing was deployed successfully to Commercial Lines. With 93 new models deployed across
the business in 2023, our AI and machine learning tools strengthen our pricing and risk selection capabilities, as well as improve
operational performance and user experience.
o
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Transform our competitive advantages (continued)
• We continued to invest in and strengthen our auto and property supply chains:
o We deployed four new Claims Service Centres in Q4-2023, bringing the total to 31 locations across Canada. Our
Claims Service Centres provide an average of 30% faster cycle time and a 15-point higher customer promoter score
than regular auto repair shops.
o On Side Restoration closed an acquisition to enhance capacity, growing to nearly 50 locations and almost 2,000
employees across Canada to help get property customers back on track.
• We continued to invest in and modernize our technology. Migration of our core platforms and improvement of our security
maturity enables new efficiencies, improves ease of doing business, and strengthens our technology resiliency.
• RSA UK Pension Trustees entered a buy-in agreement worth more than £6 billion with Pension Insurance Corporation plc
(PIC). This transaction removes almost all UK pension exposure from IFC’s balance sheet, releases capital thereby improving
OROE for IFC, and at the same time enhances security for RSA UK pension members.
Invest in our People
• We continued to invest in our deep talent pool through the pillars of our People Strategy. As at the end of 2023, we had
an average of seven successors for each senior leadership1 role at IFC.
•
To support the growth of our people, we launched Career Centre in Canada. Since the launch in September 2023, we
enabled our people to thrive by delivering over 50 sessions to nearly 3,000 employees and leaders.
• As part of the DLG brokered commercial lines acquisition, we launched a communication and engagement campaign
to maximize employee experience and solidify new relationships. The campaign includes our Let’s Connect newsletter, a
townhall with 400 of our new colleagues, and our Success Partner program.
Invest in our community
•
The Intact Centre on Climate Adaptation (ICCA) continued its leadership in building community resilience. The ICCA,
strongly focused on climate research and knowledge mobilisation, was featured in the media over 250 times and developed
guidance delivered to 500,000 households to limit flooding, wildfire and extreme heat risk.
•
•
Intact renewed its longstanding partnership with the Dallaire Institute for Children, Peace and Security at Dalhousie
University at $1.25 million over 5 years to create a Latin America Centre of Excellence.
IFC and RSA continued building resilient communities in partnership with the Nature Conservancy of Canada (NCC)
and the Gloucestershire Wildlife Trust (GWT).
o A recent project with NCC protected nearly 200 hectares of land within the Great Jacques-Cartier Bog in Quebec,
serving as an effective nature-based solution for both climate change adaptation and mitigation.
o The partnership with GWT is focused on natural flood management interventions to protect communities from
flooding and test climate adaptation and resilience solutions in urban environments.
See Section 19 – Climate change for more details on climate-related initiatives.
1 Includes Senior vice-president and above.
40 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
17.2 The RSA Journey
The RSA Acquisition was a strategically and financially compelling transaction. It was a key milestone in our journey to expand
our leadership position in Canada, create a leading specialty lines platform with international expertise and provide us with an entry
into the UK and Ireland markets at scale.
Integration of RSA Canada operations
•
All RSA Canada policy conversions have been completed, with the exception of Johnson. Claims conversions will be completed
throughout 2024. Archiving and decommissioning projects are on plan to be completed by the end of 2025.
• Retention of the RSA Canada portfolio following our RSA Acquisition continues to be aligned with or better than historical RSA
retention.
• Nearly all of RSA Canada claims are now being handled by our internal adjusters, and more than 80% of new RSA matters were
handled by our in-house legal team in 2023.
Integration of UK&I operations
•
Brought Intact’s Purpose, Values and Leadership Success Factors to the RSA UK&I business, guiding us in everything we do.
• Created a leading specialty solutions platform with international expertise, expanding our specialty presence to the UK and Europe.
•
•
In UK Commercial Lines, we focused on pricing discipline and risk selection, including further rationalisation of our footprint through
exits of underperforming SME segments and certain delegated authority arrangements.
The harmonizing of the acquired investment portfolio has been an opportunity to reassess the optimal mix of our consolidated assets,
including further diversification as well as significant increase of private credit investments and expertise.
• Reinforced RSA’s commitment to Diversity, Equity, and Inclusion (DEI) and was awarded accordingly “5 Star best Diversity, Equity &
Inclusion in the Workplace” by Insurance Business UK.
Outperformance initiatives and de-risking actions
•
Acquired DLG’s brokered commercial lines operations for an initial cash consideration of $869 million.
• Closed the sale of Codan Denmark with proceeds of $1.2 billion, with a recorded gain on sale of approximately $0.4 billion.
•
•
•
Sold RSA’s 50% shareholding in RSA Middle East B.S.C. for a total consideration of $175 million.
Exit of the UK personal lines market (motor in Q1-2023, home and pet in Q4-2023), accelerating our path to outperformance for the
RSA UK&I business.
Entered into a reinsurance agreement to provide protection for adverse development in UK&I claims liabilities for 2020 and prior.
• Reduction in major earthquake exposure with the wind down of CNS, a subsidiary in British Columbia.
• UK pension exposures were removed from IFC’s balance sheet following a buy-in agreement worth more than £6 billion, the largest
UK pension buy-in transaction to-date.
Value creation from RSA Acquisition
Expected value announced at Acquisition
Upper teen NOIPS accretion within 36 months, by
June 2024
15% IRR
$250 million of pre-tax annual run-rate synergies within
36 months
Integration costs to be between 1.5x to 1.7x of annual
run-rate synergies within 36 months
Realized value created post-Acquisition
Approximately 20% NOIPS accretion in 2023 and EPS
remains accretive, despite short-term pressures from
exited lines and restructuring costs.
IRR greater than 20%, despite our footprint optimization
and de-risking actions.
$350 million of realized annual run-rate synergies as of
Q4-2023.
Looking ahead, we expect ultimate synergies by 2026 to
be close to $450 million.
Integration costs are estimated at 1.7x our 2026 annual
run-rate synergies.
INTACT FINANCIAL CORPORATION 41
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
17.3 Global Specialty Lines (GSL)
• Our specialty lines results are embedded in the commercial operations of each segment (Canada – Section 5, UK&I – Section 6
and US – Section 7).
• Specialty insurance 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).
Each business unit is managed by an experienced team of specialty insurance professionals focused on a specific customer group
or industry segment. We continue to capitalize on the opportunities to expand and bring our capabilities to new markets across the
globe.
•
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.
Table 25 – Global Specialty Lines results1
Operating DPW (in millions) (growth in constant currency)
Operating net underwriting revenue (growth in constant currency)
Combined ratio
1,376
1,290
89.8%
1,299
1,231
86.8%
4%
3%
3.0 pts
6,117
4,825
88.0%
5,497
4,412
86.2%
9%
7%
1.8 pts
1 Figures 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 adjustment and reinsurance non-performance risk.
2 Figures are presented under IFRS 4.
Q4-2023 Q4-20222 Change
2023
20222
Change
GSL highlights
• Operating DPW in constant currency grew by 4% to $1.4 billion in the quarter and by 9% to $6.1 billion in the year, with
continued rate actions across most lines of business. In Canada, headwinds reflected targeted actions to optimize the portfolio
as well as increased competition for large accounts.
• Combined ratios of 89.8% for the quarter and of 88.0% for the year were solid despite the elevated catastrophe losses
experienced in all regions throughout the year.
42 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 18 - Progress on our two financial objectives
18.1 Grow NOIPS by 10% yearly over time
NOIPS performance over time (in dollars)
CAGR of 6% (3Y: 2020-23), 15% (5Y: 2018-23), 13% (7Y: 2016-23) and 12% (10Y: 2013-23)
9.92
12.41
$0.8B of
CAT losses
11.92
$1.3B of
CAT losses
11.70
5.67
6.38
4.88
5.60
5.74
6.16
3.62
2013 2014 2015 2016 2017 2018 2019 2020 2021
IFRS 4 basis
2022 2023
IFRS 17 basis
• During the last decade, our NOIPS grew at a CAGR of 12%. This was driven by solid organic growth, healthy
underwriting margins, as well as strong investment and distribution results, altogether bolstered by
contributions from our numerous acquisitions.
• Despite the unusually challenging operating environment over the last 24 months, from severe weather
conditions, inflation pressures and market volatility, we reported solid results, a testament to the resilience of
our operations as well as our ability to deliver strong profitable growth.
• We remain confident in our ability to grow NOIPS by 10% annually, over time.
18.2 Exceed industry ROE by 5 points
ROE outperformance1 versus the industry over time2 (in points)
16.8
8.2
10.3
4.1
14.3
11.0
5.1
5.8
13.0
6.9
11.8
11.4
15.0
21.0
19.5
12.1
8.3
5.3
6.5
7.1
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1 IFC’s ROE corresponds to an adjusted return on equity (AROE), which is more comparable to the industry.
2 Our final 2023 outperformance results will be available in Q2-2024.
• During the last decade, our average ROE was of 14.4%, exceeding the industry ROE by a yearly average of
6.9 points, which is better than our target. Our BVPS has grown at a CAGR of 9% over the past 10 years.
• Overall, our ROE outperformance was driven by a combination of strong underwriting results, efficient capital
and investment management as well as healthy distribution income. We have achieved our objective of
exceeding the industry ROE by 5 points in 9 out of the last 10 years.
• We continue to target 500 bps of ROE outperformance every year driven by our underwriting, claims, as well
as capital and investment management activities.
INTACT FINANCIAL CORPORATION 43
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 19 - 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 we have been on the front lines of climate change for over a decade, which
puts us in a unique position to play a leadership role in strengthening society’s climate resilience. For over ten years, we have been
spearheading various applied research and community-level investment projects to demonstrate the concrete benefits of climate
adaptation. In 2022 we launched our Climate Strategy, acknowledging that the decades ahead will also present opportunities to win as
a business, and publicly commit to achieving net zero by 2050.
In the following sections on climate change, we outline our approach to governance (Section 19.1), how we manage physical and
transition risk (Section 19.2), and our “help and win” strategic framework (Section 19.3). More information on IFC’s ESG performance
and targets is publicly reported within its annual Social Impact and ESG Report.
19.1 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 within industry associations, for example the Geneva Association, and through collaboration with
governments and regulators, including bilateral engagements with multiple levels of governments.
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 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 at Intact.
The Board of Directors2 is ultimately responsible for overseeing the strategic direction and initiatives of IFC, including our strategy
related to climate change. Climate change risk is shared accountability of the Board’s Risk Management Committee (RMC), Audit
Committee (AC) and Governance and Sustainability Committee (GSC). The RMC oversees the assessment and management of the
risks related to climate change and the development of strategies to manage these risks. The AC oversees the integrity, fairness and
completeness of our climate-related financial disclosures. The GSC oversees our compliance and climate-related corporate disclosure
and supports the Board in overseeing our climate strategy and objectives. The Board as a whole is engaged in shaping the strategy as
well as oversight.
1 See Section 29 – Enterprise Risk Management for more details.
2 See Section 27 – Risk Management structure for more details on our Board of Directors and Committee structures.
19.2
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 29.6 – Top and emerging risks that may affect future results, the ERM Committee identified climate
change as a top risk facing IFC.
Our approach to Physical and Transitional risks, which are inherently connected, is outlined below. 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.
44 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
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. Our risk management and underwriting expertise have enabled strong financial performance even in lines
heavily impacted by severe weather. For example, in the personal property Canada business line, we have shown long-term resiliency
with an average combined ratio below 90% in the last 10 years.
Our team of specialists in meteorology, geomatics, data science, climate science and actuarial science continuously evaluate how our
underwriting business is impacted by weather-related events. Global temperatures have risen 1.1-1.2°C since pre-industrial levels and
we have seen a four-fold increase in natural hazards over the past three decades. We recently evaluated the impact of a 3-5°C global
warming scenario, using the Intergovernmental Panel on Climate Change’s (IPCC) RCP8.5 (Representative Concentration Pathway),
currently representing the scenario with the highest level of GHG emissions and resulting warming among all modelled RCP’s. We
developed peril-by-peril projections through to 2040 – a prudent timeline for understanding and proactively responding to the anticipated
impacts – starting with our Canadian personal lines business. The results of this assessment lead us to believe that the projected
increase in weather-related losses in this segment will be manageable for IFC, based on our diversified business segments, the current
design of our products and pricing, as well as anticipated future management actions to further mitigate physical risk.
For more details on weather-related CAT losses, see Section 10.2 – CAT guidance.
The actions we have taken to lower the impact and volatility of physical risks include:
Pricing & risk
selection
• Re-pricing when needed, as most of our products are 12 months in duration. This allows for our charged
prices to be responsive to the latest weather-related trends which we assess and action in our property
business.
• 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. To get the full benefits
of our pricing sophistication, we have account level pricing governance metrics for new business and
renewals that are monitored closely to ensure execution of the pricing strategies.
Product
• Continually evolve our products to account for new climate realities, such as individualizing coverages by
peril; bundling and enhancing our water damage product to improve penetration rates of flood protection for
our customers; implementing the latest hazard maps to most accurately reflect exposure; and implementing
coverage endorsements that respond to changing risk.
Supply chain &
claims
Risk control and
loss prevention
• Capitalizing on opportunities 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. On Side maintains
expertise in clean-up and restoration, enabling us to mobilize our emergency response in impacted regions.
• Using 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.
•
Investing in a global risk control team with vast backgrounds including engineers, fire protection experts,
sprinkler designers, brokers, claims adjusters, and underwriters.
• Using 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.
• Offering discounts when customers have taken preventative actions, such as those that limit the damage
from water-related losses. We are also committed to Flood Re’s Build Back Better scheme, which
incentivizes preventative actions, including the installation of property flood resilience measures when
repairing properties.
• Digitally engaging with customers through our mobile app to proactively provide weather and seasonal alerts,
while offering preventive tips to protect and maintain their homes and cars.
INTACT FINANCIAL CORPORATION 45
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Enhanced loss
modelling
Risk transfer
• Enhancing 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.
• Combining specialized actuarial talent within the Company, with that of our CCGA (meteorology,
climate science, geomatics, and data science) in pricing, segmentation and risk selection.
• Setting risk tolerances based on catastrophe model output and use it to determine pricing.
• Reinsuring certain risks with external reinsurers to limit our maximum loss in the event of
catastrophes or other significant losses. The placement of ceded reinsurance is mainly on an
excess-of-loss basis (per-risk or per-event), with the primary objective of capital protection. See
Section 22.2 – Reinsurance for more details.
• Engaging with investees on climate change resiliency, to assess the awareness of climate-related
Engaging with
investees
•
Transition Risk
weather issues and investees’ adaptation efforts.
In 2023, Intact Investment Management (IIM) portfolio managers held 77 meetings to engage in
discussions on investees’ climate resilience.
The transition to a low-GHG future has the potential to negatively impact certain businesses, adding risk to the assets we hold and
customers we insure in certain sectors. The actions we have taken to reduce transition risks to our business include:
Transition risk
assessment for
investments
Engaging
with investees
• Enhancing our internal analysis and understanding of potential impacts of transition risk on
specific industries within our asset portfolio, building on IFC’s participation in regulatory scenario
analysis pilot projects to explore the risks posed by climate change and test the resilience of the
financial services sector.
• Recognizing the need for continued investment in data and modelling to continuously refine our
analysis given the stochastic and uncertain nature of climate risk.
• Confirming the benefits of our diversified, high-quality portfolio as well as our policies to review
our investees’ 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.
• Continuing to progress our engagement of investees through Climate Engagement Canada as
a founding participant, to drive dialogue with Canadian issuers about climate risks and
opportunities.
Through deployment of our position on oil and gas, engaging with investee companies who do
not have satisfactory transition plans and expect tangible improvements.
•
• Removing companies who are non-responsive or do not provide evidence of progress on their
plan from our investment universe.
Proxy voting
policy
•
•
Leveraging our position as investors to have a say on climate related issues.
In 2023, IIM voted on 347 shareholder proposals related to ESG matters overall.
Investment
policies
• Continuing to enforce our positions on coal and oil and gas, focusing on supporting the energy
sector transition towards a low-carbon economy. This involves assessing the climate disclosure
and transition plans for all companies in our investment universe that:
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 producers in our portfolio.
• Removing companies from our investment universe who are non-responsive or do not provide a
o
o
o
satisfactory plan.
Underwriting
•
Leveraging our internal climate risk management framework for the underwriting process across
commercial, personal and global specialty lines of business.
• Holding our leaders accountable to identify, assess, measure and monitor climate risks and
identify opportunities in our insurance business.
46 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
19.3 Climate Strategy
We are here to help people, businesses, and society prosper in good times and be resilient in bad times. As part of living that purpose,
we have embedded climate change into our strategic objectives, with a focus on achieving net zero by 2050 and being recognized as
a leader in building resilient communities. This led to the launch of our 5-part climate strategy in 2022, which focuses on applying our
expertise, scale, and resources to address societal challenges with climate change and seize market opportunities for IFC. We will
leverage our strengths and help society by focussing on 5 big intentions:
Our climate strategy is grounded in the following guiding 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.
Over the past decade, IFC has supported various climate change initiatives, contributing to strengthening society’s climate resilience.
We created the Intact Centre on Climate Adaptation (ICCA) at the University of Waterloo in 2015, an applied research centre which
works with homeowners, communities, governments, and businesses in Canada to help reduce impacts of climate change through the
incubation and mobilization of adaptation action. And since 2010, we have committed $26.4M in funding for climate adaptation action,
including our support for the ICCA, the Nature Conservancy of Canada, and the Gloucestershire Wildlife Trust in the UK.
INTACT FINANCIAL CORPORATION 47
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
FINANCIAL CONDITION
Section 20 - Financial position
Section
December 31,
2023
September 30,
2023
December 31,
2022
(Restated)
21
24
33
1,171
1,588
26,848
1,384
4,668
480
944
37,083
5,217
944
9,132
3,603
55,979
30,353
5,081
4,070
39,504
8,099
1,619
9,718
290
6,503
(321)
16,190
285
16,475
55,979
1,531
1,832
25,849
1,332
4,451
482
997
36,474
5,261
951
8,150
4,171
55,007
30,307
4,927
4,096
39,330
8,099
1,619
9,718
262
6,179
(767)
15,392
285
15,677
55,007
1,010
1,786
25,309
1,421
4,598
476
1,001
35,601
5,004
845
8,050
4,241
53,741
29,130
4,522
3,961
37,613
7,542
1,322
8,864
269
7,801
(1,091)
15,843
285
16,128
53,741
20.1 Balance sheets
Table 26 – Balance sheets
As at
Assets
Investments
Cash and cash equivalents
Short-term notes
Fixed-income securities
Preferred shares
Common shares
Investment property
Loans
Total investments
Reinsurance contract assets
Investments in associates and joint ventures
Intangible assets and goodwill
Other assets
Total assets
Liabilities
Insurance contract liabilities
Debt outstanding
Other liabilities
Total liabilities
Equity
Common shares
Preferred shares and other equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
48 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 21 - Investments and capital markets
21.1 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.
21.2 Capital market update
We continued to observe significant volatility in financial markets. Several recession indicators are pointing to difficult quarters ahead.
Inflation has cooled but remains above targets, with central banks reaffirming their intention to bring it in line. The increase in interest
rates is affecting asset values, and we are closely monitoring the impact of lower commercial real estate values and the decrease in
lending appetite from US banks.
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 27 – 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 Canada AA Corporate spread
Strengthening (weakening) of:
USD vs CAD
GBP vs CAD
Q4-2023
Q4-2022
2023
2022
7%
12%
8%
6%
5%
2%
14%
(5)%
8%
9%
1%
(9)%
(13)%
(7)%
(1)%
(22)%
(107) bps
(76) bps
(105) bps
(10) bps
(14) bps
(9) bps
(77) bps
12 bps
(24) bps
(16) bps
(15) bps
(27) bps
221 bps
274 bps
280 bps
67 bps
(2)%
2%
(2)%
6%
(2)%
3%
7%
(4)%
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
21.3 Our portfolio remains of high quality
2023 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 as well as positive
market returns, partly offset by the cash consideration paid following the close the DLG
brokered commercial lines acquisition.
• 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, 2023 (81% as at December 31, 2022). On a consolidated basis, the
weighted-average rating of our fixed-income portfolio was ‘AA’ as at December 31,
2023 and December 31, 2022. The average duration of our fixed-income portfolio was
3.5 years as at December 31, 2023 (3.4 years as at December 31, 2022).
• 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,
2023 and December 31, 2022.
• We have minimal direct exposure to US regional banks. RSA’s investment property
portfolio is unlevered, diversified in terms of sectors (office, commercial and industrial)
and geography within the UK.
Investment portfolio
by geography
(country of incorporation)
Canada
US
UK
Other
10%
11%
26%
$37B
53%
21.4
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, 2023 (after reflecting the impact of hedging strategies related to investments and foreign
subsidiaries) is outlined below. Additional information on detailed exposures can be found in our Statistical Supplement, available in
the “Investors” section of our web site at www.intactfc.com.
Table 28 – Investment mix (net exposure)
As at
By asset class
Cash, cash equivalents, and short-term notes
Fixed-income
Preferred shares
Common equity
Investment property
Loans
By currency
CAD
USD
GBP
Other currencies
Dec. 31, 2023
Sept. 30, 2023
Dec. 31, 2022
9%
77%
4%
6%
1%
3%
66%
15%
15%
4%
12%
75%
4%
5%
1%
3%
66%
16%
14%
4%
10%
75%
4%
7%
1%
3%
67%
15%
14%
4%
We continued to remain overweight on cash, cash equivalents and short-term notes, and underweight on equities given persisting
market volatility. Our fixed-income strategy remains the same: conservative credit exposure and stable interest rate duration.
The reduction in the weight of cash, cash equivalents, and short-term notes in the quarter mostly comes from the closing of the
DLG brokered commercial lines acquisition on October 26, 2023. The increase in market value of our fixed income portfolio was
driven by the decrease in interest rates during the quarter.
50 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
21.5 Net pre-tax unrealized gain (loss) on FVTOCI fixed-income securities
Table 29 – Net pre-tax unrealized gain (loss) on FVTOCI/AFS fixed-income securities
As at
Fixed-income securities
Preferred shares1, 2
Common shares1
Net pre-tax unrealized gain (loss) position
Dec. 31,
2023
(504)
n/a
n/a
(504)
IFRS 9
Sept. 30,
2023
(1,080)
n/a
n/a
(1,080)
June 30,
2023
March 31,
2023
(927)
n/a
n/a
(927)
(723)
n/a
n/a
(723)
IAS 39
Dec. 31,
2022
(1,160)
(216)
(113)
(1,489)
1 Given that the above table presents unrealized balances that may be recycled in earnings in the future, FVTOCI equities are excluded.
2 As of January 1, 2023, on transition to IFRS 9, we made an irrevocable election to designate the preferred shares as FVTOCI with fair value changes to be presented
directly and permanently in shareholders’ equity (within OCI). As of December 31, 2023, there was an unrealized loss position of $154 million on the FVTOCI preferred
shares.
Highlights
The unrealized loss position improved to $504 million as of December 31, 2023, a reduction in the losses of 53% compared to
September 30, 2023. This was driven by a decrease in interest rates in Canada, the US and the UK.
Reminder: The decrease in unrealized loss position from December 31, 2022 is mainly driven by the reclassification of after-tax
unrealized losses of $420 million for equity and fixed-income instruments, driven by the transition to IFRS 9. In addition, common
shares that were previously classified as AFS are now designated as FVTPL, and preferred shares designated as FVTOCI will have
their changes in fair value recognized in OCI (without recycling to Net income).
INTACT FINANCIAL CORPORATION 51
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 22 - Claims liabilities and reinsurance
22.1 Claims liabilities
Our liability for incurred claims estimates are based on various quantitative and qualitative factors, including trends in claim severity
and frequency, payment patterns, inflation, discount rate, risk adjustment and other factors, with the main underlying assumption
that our future claims development will follow a similar pattern to past claims development experience.
Our total claims reserve is made up of reported claims case reserves and incurred but not reported (“IBNR”) reserves. In addition
to reserving for possible incurred claims that have not yet been reported by policyholders, IBNR also supplements the case reserves
by taking into account 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.
Our liability for incurred claims is discounted at a rate that reflects the characteristics of the liabilities and the duration of each
portfolio. Our discount yield curves are established using risk-free rates adjusted to reflect the appropriate illiquidity characteristics
of the applicable insurance contracts.
The ultimate claims cost for any accident year is not known until all claims for that period have been reported and settled, which
may span many years in the case of casualty (long-tailed) coverages. Case reserves and IBNR should be sufficient to cover all
expected claims liabilities for events that have already occurred, whether reported or not, and are discounted to take into account
the time value of money. Our reserve estimates are evaluated quarterly.
Net liability for incurred claims1
by business segment
P&C Canada P&C U.S. P&C UK&I
December 31, 2023
Net liability for incurred claims1
by line of business
PL CL
9%
28%
63%
Liability for incurred claims stood at
$26.2 billion (on a direct basis) and
at $21.6 billion (on a net basis) as at
December 31, 2023.
45%
55%
1 Represents the net liability for incurred claims before net payables included in incurred claims and the reclass of net claims reported under the GMM.
52 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
22.2 Reinsurance
In the ordinary course of business, we reinsure certain risks with external reinsurers to limit our maximum loss in the event of
catastrophic events or other significant losses. Our objectives related to ceded reinsurance are primarily capital protection and are not
intended to manage quarter to quarter volatility of results. 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.
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 30 – Corporate reinsurance program for multi-risk events and catastrophes
As of January 1,
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
2024
2023
250
5,400
150
1,300
150
2,100
250
6,400
150
1,300
125
1,600
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, 2024
•
For Canadian events, the lower coverage limit reflects reductions in earthquake exposure in British Columbia. However, the
limit as a percentage of our 1 in 500-year PML is higher than it was as at January 1, 2023.
• As an illustration of the capacity of our 2024 reinsurance program, as at January 1, 2024, the retained cost of a 1 in 500-year
earthquake event in Western Canada would represent around 4 points of combined ratio (5 points in 2023), pre-tax, based on
latest exposures. This was calculated using our retained cost of $250 million retention plus reinstatement premiums and co-
participations. Overall, this demonstrates that an event of this magnitude can be well absorbed within our yearly earnings, with
limited impact on our balance sheet and capital position.
•
•
For UK&I events, we have increased our retention and coverage limits for 2024 to reflect the addition of the DLG brokered
commercial lines operations. The UK&I limit requirement will begin to reduce from Q3-2024, as the UK personal lines portfolio
runs-off.
For US events, there has been no change to the retention or the coverage limit for 2024.
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.
See Note 13 – Reinsurance to the Consolidated financial statements for further details.
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 23 - 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. In the UK&I, we provide DC pension plans to current employees. In the US, we provide a 401(k) plan to our 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
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 pension asset mix, including buy-in annuity contracts by country are summarized
below.
Table 31 – Selected pension indicators
As at
Fair value of plan assets (see asset mix below)
DB pension obligation
Other net surplus remeasurements
Net DB pension asset (liability)
Pension asset mix
Debt securities
Buy-in annuity insurance contracts
Common shares
Derivative financial instruments
Deferred annuity premium
Other
Total assets
Funded status – funded plans only
% Annuities / Plan assets
Canada
3,276
(3,272)
(5)
(1)
1,545
1,035
857
1
-
(162)
3,276
106%
32%
December 31, 2023
Total
UK&I
9,332
(9,327)
(3)
2
12,608
(12,599)
(8)
1
124
9,188
25
(7)
(180)
182
9,332
100%
98%
1,669
10,223
882
(6)
(180)
20
12,608
102%
81%
Canada
3,040
(2,898)
(8)
134
1,440
1,021
805
(9)
-
(217)
3,040
111%
34%
December 31, 2022
Total
UK&I
9,480
(8,939)
(180)
361
12,520
(11,837)
(188)
495
9,541
43
37
(30)
-
(111)
9,480
106%
-%
10,981
1,064
842
(39)
-
(328)
12,520
107%
8%
54 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
23.1 UK pension buy-in transaction
Strategic rationale
•
•
•
•
In February 2023, we entered into an agreement with Pension Insurance Corporation plc (“PIC”), a specialized insurance
counterparty, for a bulk purchase of annuity buy-in insurance contracts for a total premium payment of £6.3 billion (the “UK
pension buy-in transaction”).
The UK pension buy-in transaction transferred substantially all remaining economic and demographic risks associated with
two major UK DB pension plans to PIC.
This transaction removed balance sheet exposure to pension risks that are non-core to our business and at the same time
enhanced security for RSA UK pension members. It also eliminated our obligation to contribute £75 million per year to the
pension schemes and released approximately £150 million of capital.
The UK pension buy-in transaction supported our ROE outperformance objective by improving capital efficiency and our ability
to capture future strategic opportunities, as we are no longer constrained by the responsibility of managing the liabilities of
these pension schemes and all future funding needs.
Financial impact
Ten-months after the UK pension buy-in transaction, the impacts on our 2023 financials were as follows:
• NOIPS decrease of approximately 1.4%, due to the financing costs associated with this transaction;
• Single-digit dilution to BVPS, as a result of the net initial actuarial loss of $1,195 million (£727 million) recognized in OCI; and
• OROE improvement of approximately 90 bps, due to the weighted impact of this transaction recognized in our average
common shareholders’ equity. By Q1-2024, we continue to expect a 100 bps benefit to be reflected in OROE.
For more details on the transaction, please refer to Note 31.6 - Additional information on UK DB pension plans to the Consolidated
financial statements.
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 24 - Capital management
24.1 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. The normal operating range for the total capital margin is anticipated to be $2.0 billion to $2.5 billion.
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.
56 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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).
Operating targets for each jurisdiction are selected at a level that reflects our current risk appetite, market conditions, or regulatory
considerations. Capital levels are managed around the operating target, and it is expected that actual results will vary above or below
that target for any single reporting period.
• 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 Insurers Act.
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.
•
The operating target for the aggregated Canadian entities is 195% MCT.
• 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 operations use an internal model compliant with the Solvency II regime enacted in the UK and approved
by the PRA to calculate the SCR.
UK&I
•
•
The coverage ratio represents total Eligible Own Funds over the SCR as determined by the internal model.
The operating target for the UK&I is 160% SCR.
• 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.
•
The operating target for the US is 375% RBC.
Regulatory capital guidelines change from time to time and may impact our capital levels. We carefully monitor all changes, actual or
proposed.
INTACT FINANCIAL CORPORATION 57
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
24.2 Maintaining a strong capital position
Capital position
Table 32 – Estimated aggregated capital position1
As at
Total capital margin
Canadian regulated entities
UK & International regulated entities
US regulated entities
Holding Companies
Total capital margin
Regulatory capital ratios
Canadian regulated entities
UK & International regulated entities3
US regulated entities
Regulatory
capital ratios
CAL
Dec. 31,
2023
Sept. 30,
2023
June 30,
2023
March 31,
2023
Dec. 31,
2022
1,428
633
555
55
2,671
210%
168%
381%
971
768
570
532
2,841
197%
185%
383%
1,160
694
588
40
2,482
201%
180%
399%
1,459
657
600
80
2,796
210%
177%
406%
1,005
725
560
89
2,379
197%
175%
388%
MCT
SCR
RBC
169%2
120%
200%
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 The weighted-average CAL for all regulated Canadian insurance entities is 169% MCT for 2023. The CAL varies by legal Canadian entity.
3 Indicated CAL and coverage figures are for Royal & Sun Alliance Insurance Limited which includes all UK & International insurance subsidiaries.
2023 key performance indicators ($ in billions)
1 Includes changes in capital requirements, variations in cash at the Holding company, statutory adjustments and other.
2 Includes issuance and repayment of debt, preferred shares dividends as well as financing raised for acquisitions.
3 Represents capitalized expenditures, net acquisitions/divestitures of brokers and strategic investments as well as special transactions.
2023 Capital highlights
Total capital margin was solid at $2.7 billion as at December 31, 2023, with an increase of $0.3 billion over the year, due to:
•
Solid capital generated of $1.6 billion, despite $0.5 billion of catastrophe losses in excess of expectations, largely utilized to support
organic growth objectives and to return approximately $0.8 billion of dividends back to shareholders.
• We have undertaken a number of capital deployment initiatives totalling $2.2 billion, including consideration paid of $0.9 billion for
the DLG brokered commercial lines acquisition and $0.8 billion for the UK pension buy-in transaction, as well as continued
investments in our distribution business.
•
Financing raised of $1.3 billion reflected the combination of issuances of short- and long-term debt as well as equity capital to
finance primarily the DLG brokered commercial lines acquisition and the UK pension buy-in transaction.
As at December 31, 2023, each of the Company’s regulated P&C insurance subsidiaries were well capitalized and in compliance with
regulatory capital requirements by jurisdiction.
58 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
24.3 Managing leverage
We believe that our optimal financing structure is one where:
1) the adjusted debt-to-total capital ratio is broadly at 20%; and
2) approximately 10% of our total capital is comprised of preferred shares and hybrid debt
(including LRCN).
Capital structure
December 31, 2023
Debt (excluding hybrid debt)
Preferred shares and hybrid debt
Equity
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.
68%
22%
10%
Table 33 – Weighted-average debt maturity, debt coupon and preferred share coupon
Weighted-average of funding instruments
As at
December 31, 2023
Debt maturity
(excl. commercial
paper & hybrid debt)
Debt coupon
(incl. commercial
paper & term loans)
Debt
carrying amount
(incl. commercial
paper & term loans)
Preferred share
coupon1
Preferred share
carrying amount1
2023
2022
12 years
12 years
3.01%
2.89%
4,834
4,275
5.07%
4.65%
2,151
1,854
1 Includes preferred shares and other equity outstanding, assumed preferred shares issued by RSA as well as hybrid subordinated notes
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,
2023, our adjusted debt-to-total capital ratio of 22.4% was relatively stable compared to the previous quarter, and is expected to return
to our long-term target of 20% by the end of 2024.
Debt outstanding
(excluding hybrid debt)1
Adjusted
total capital1
Adjusted debt-to-total
capital ratio1
Table 34 – Financing activity
Financing
As at December 31, 2022
Commercial paper
Credit facility
Common shares issuance
Preferred shares and other equity issuance
Redemption of Tier 2 Notes
Series 14 medium-term notes issuance
Term loans
Issuance of CAD tranche and GBP tranche
Issuance of GBP loan
Repayment of CAD tranche
Other movements
4,275
(30)
(2)
-
-
(67)
396
294
109
(130)
(11)
As at December 31, 2023
1 See Section 31 – Non-GAAP and other financial measures for more details.
4,834
20,650
(30)
(2)
551
297
(67)
396
294
109
(130)
(512)
21,556
20.7%
(0.1)%
-%
(0.5)%
(0.3)%
(0.2)%
0.9%
1.6%
0.4%
(0.5)%
0.4%
22.4%
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
NCIB program
LRCN Series 1
Financing activities in 2023
• On February 17, 2023, we renewed the normal course issuer bid (“NCIB”) program to purchase for
cancellation during the next twelve months up to 3% of IFC’s issued and outstanding common shares.
As at December 31, 2023, only 2,000 shares were repurchased.
• Subsequent to year end, the Board has authorized, subject to TSX approval, the renewal of the NCIB
to purchase for cancellation up to 3% of the Company’s issued and outstanding common shares
commencing February 17, 2024.
• On March 7, 2023, we issued $300 million of Limited Recourse Capital Notes Series 1 (“LRCN Series
1 Notes”) which were offered by way of private placement to accredited investors. The proceeds
received were used for the purpose of partially funding the execution of the UK pension plans buy-in
transaction.
Tier 2 subordinated
notes
• On June 6, 2023, we redeemed a portion of the principal amount of the subordinated notes outstanding
ahead of their maturity date, $67 million (£40 million) worth, using our commercial paper program and
available cash.
Common shares
issuance
• On September 13, 2023, we issued 3,065,900 common shares at a price of $187.60 per common share
for gross proceeds of $575 million. The proceeds were used to partially fund the DLG brokered
commercial lines acquisition.
Series 14
unsecured medium-
term notes
Term Loans
$1.8 billion credit
facility
Commercial paper
program
• On September 14, 2023, we completed an offering of $400 million principal amount of Series 14
unsecured medium-term notes through a private placement to accredited investors in Canada. The net
proceeds received were used to partially fund the DLG brokered commercial lines acquisition.
• On February 27, 2023, we entered into a 12-month term loan agreement, issuing a GBP tranche for an
amount of $164 million (£100 million) and a CAD tranche for an amount of $130 million. The proceeds
were used for the partial funding of the UK pension buy-in transaction. As at December 31, 2023, the
CAD tranche was repaid in full. Subsequent to year end, on February 8, 2024 the GBP tranche was
repaid in full using available excess cash.
• On October 24, 2023, we entered into a 24-month term loan agreement for an amount of $109 million
(£65 million). The proceeds received were used to partially fund the DLG brokered commercial lines
acquisition.
• On October 19, 2023, our credit facility increased from $1.5 billion to $1.8 billion, with a new maturity
date of October 19, 2028, providing additional liquidity as needed. As at December 31, 2023, no amount
was drawn under the credit facility ($2 million as at December 31, 2022).
• As of December 31, 2023, we had $105 million outstanding ($135 million as of December 31, 2022),
with weighted average maturity of 22 days and weighted average annual rate of 5.16%. This program
represents an effective short-term funding vehicle. We expect to continue using commercial paper to
manage short-term liquidity needs.
See Note 19 – Debt outstanding and Note 20 – Share capital of the Consolidated financial statements for more details.
60 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
24.4 Common shareholder dividends
2024: our 19th 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 in 2004.
•
The decision to increase our dividends by $0.11 to $1.21 per quarter in 2024 reflects the strength of our financial position and
confidence in our ongoing operating earnings and capital generation This represents the 19th consecutive increase in dividend
since our initial public offering (IPO).
CAGR of 12% (3Y: 2021-24), 10% (5Y: 2019-24) and 10% (10Y: 2014-24)
1.92
2.12
2.32
2.56
2.80
3.04
3.32
3.40
4.00
4.40
1
4.84
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
1Annual dividend for 2024 is projected
24.5 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 35 – Ratings
Latest review
Outlook
Financial strength ratings
IFC’s principal Canadian P&C insurance subsidiaries
RSA Canadian entities
Intact U.S. Holdings Inc.
RSA Insurance Group Limited
Senior unsecured debt ratings
Intact Financial Corporation
Intact U.S. Holdings Inc.
RSA Insurance Group Limited
A. M. Best
DBRS
Moody’s
Fitch
May 18, 2023
Stable
Oct. 10, 2023
Stable
Oct. 18, 2023
Positive
Dec. 13, 2023
Stable
A+
not rated
A+
A
AA
AA
AA
AA
a-
a-
a+
A (high)
A (high)
A (high)
A1
A1
A2
A2
Baa1
Baa2
Baa1
AA-
AA-
AA-
AA-
A-
A-
A-
2023 Ratings highlights
• On March 1, 2023, A.M. Best reaffirmed Intact’s ratings following the UK pension buy-in transaction and noted that the
transaction will result in significantly lower pension risk to IFC’s balance sheet.
• On October 10, 2023, DBRS Morningstar upgraded our debt ratings from “A” to “A (high)” and our financial strength ratings
from “AA (low)” to “AA”, with stable outlook, reflecting our strong financial performance and growth in premiums, as well as
recent acquisitions that have enhanced our product offering and provided revenue diversification while deepening market
shares.
• On October 18, 2023, Moody's changed its outlook from stable to positive reflecting our strong market presence in Canada,
improved product and geographic diversification as a result of acquisitions, continued risk management discipline and solid
reserving adequacy, as well as strong and consistent underwriting profitability.
INTACT FINANCIAL CORPORATION 61
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
24.6 Book value per share
CAGR of 12% (3Y: 2020-23), 11% (5Y: 2018-23) and 9% (10Y: 2013-23)
82.34
82.84
81.71
Book value per share increase over time
37.75
39.83
42.72
33.94
48.00
48.73
53.97
58.79
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Restated
2023
10.3%
16.8%
14.3%
11.0%
Table 36 – Evolution of BVPS (in dollars)
AROE evolution over time
11.8%
13.0%
11.4%
15.0%
21.0%
19.2%
11.7%
2023 Highlight: Our BVPS
remained in line with last
year, as anticipated. The
dilutive impact of the UK
pension buy-in transaction in
Q1-2023 was fully recovered
by strong earnings, capital
gains in the quarter and the
equity issuance from Q3-
2023.
AROE has averaged 14.5%
over the last decade.
BVPS, beginning of period under IFRS 4
Impact of application of IFRS 17 and IFRS 9
BVPS, beginning of period (restated)
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 FVTOCI securities
Foreign exchange impact, net of hedges
UK pension buy-in transaction
Net actuarial gains (losses) on employee future benefits
Dividends on common shares
Net impact from issuance of common shares
Other1
BVPS, end of period
1 Included share-based payments.
2 Changes for movements in the year 2023 are based on the restated opening BVPS.
Q4-2023
Change in %2
2023
Change in %2
n/a
n/a
77.24
4.22
(1.44)
2.78
2.72
(0.02)
-
(0.06)
(1.10)
-
0.15
81.71
n/a
n/a
n/a
5.5%
(1.9)%
3.6%
3.5%
-%
-%
(0.1)%
(1.4)%
-%
0.2%
5.8%
80.33
2.51
82.84
11.70
(4.71)
6.99
1.77
0.19
(6.83)
(0.58)
(4.40)
1.80
(0.07)
81.71
n/a
3.1%
n/a
14.1%
(5.7)%
8.4%
2.1%
0.2%
(8.2)%
(0.7)%
(5.3)%
2.2%
(0.1)%
(1.4)%
2023 vs 2022
• EPS contribution of $6.99 reflected strong earnings throughout the year, even after absorbing elevated catastrophe losses as
well as higher non-operating costs related to the strategic exit from the UK personal lines market.
• Gains on FVTOCI securities of $1.77 per share reflected the decrease in interest rates in all regions in Q4-2023, driving
strong mark-to-market gains on our fixed-income investments.
• Favourable net impact of $1.80 per share as a result of our common share issuance for the DLG brokered commercial lines
acquisition.
• A decrease of $6.83 per share related to the UK pension buy-in transaction. This transaction generated a net initial actuarial
loss of $1,195 million (£727 million) in Q1-2023, which was recognized in OCI.
62 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
24.7 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 37 – Cash flows
Q4-2023
Q4-2022
Restated
Change
2023
2022
Restated
Change
Net cash flows provided by operating activities
381
928
(547)
1,846
3,665
(1,819)
Cash flows generated from (deployed on):
Proceeds from the sale of businesses
Proceeds from issuance of debt, net
Repayment of debt
Borrowing on (repayment of) the credit facility and
commercial paper, net
Proceeds from issuance of common shares, net
Proceeds from issuance of preferred shares and other
equity, net
Repurchase of common shares for share-based
payments
Repurchase of common shares for cancellation
Payment of dividends on common shares, preferred
shares and other equity distribution
Payment of dividends to non-controlling interests
Redemption of non-controlling interests
Payments of lease liabilities
Proceeds from (purchases of) brokerages and other
equity investments, net
Purchases of intangibles and property and equipment,
net
Business combination, net of cash acquired
Net cash inflows (outflows) before the following:
Proceeds from sales of investments (purchases of), net
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Exchange rate differences on cash and cash equivalents
Cash and cash equivalents, end of the period1
1 Net of bank overdraft.
-
109
(51)
105
-
-
(6)
-
(224)
(7)
-
(28)
-
(1)
(372)
107
-
-
(5)
(1)
(191)
(7)
-
(27)
-
110
321
(2)
-
-
(1)
1
(33)
-
-
(1)
(58)
(35)
(23)
(114)
(869)
(762)
412
(350)
1,531
(10)
1,171
(119)
-
5
(869)
277
(602)
(1,039)
1,014
(325)
1,310
25
1,010
(25)
221
(35)
161
-
799
(198)
(32)
551
296
(128)
-
(862)
(15)
-
(90)
(126)
(458)
(869)
714
(552)
162
1,010
(1)
1,171
1,295
1,258
(1,700)
(1,295)
(459)
1,502
(302)
-
146
(112)
(150)
(762)
(24)
(450)
(111)
270
551
150
(16)
150
(100)
9
450
21
(235)
109
(411)
(239)
(47)
(630)
1,868
(3,156)
(1,154)
2,604
(1,288)
1,450
2,276
22
1,010
(1,266)
(23)
161
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.
Cash position at the end of Q4-2023
INTACT FINANCIAL CORPORATION 63
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Holding company cash flow
We hold cash and cash equivalents at the holding company level, Intact Financial Corporation, and within our wholly owned operating
subsidiaries. As at December 31, 2023, Intact Financial Corporation (our holding company) had $8 million of cash and cash equivalents
($4 million as at December 31, 2022).
Table 38 – Cash flows at the holding company level
Net cash and cash equivalents, at the beginning of the period
Cash flows generated from:
Our wholly owned operating subsidiaries
Cash flows deployed on:
Investing, financing and treasury activities
Capital returned to shareholders
Corporate expenses1
Net cash and cash equivalents, at the end of the period
1 Including debt interest payments, preferred shares dividend and other equity distribution, as well as other general expenses.
2023
4
1,562
(217)
(778)
(563)
8
24.8 Contractual obligations
Table 39 – Contractual obligations
As at December 31, 2023
Principal repayment on notes outstanding1
Interest payments on notes outstanding
Insurance contract liabilities2,3
Leases4
Investments5
Financial liabilities related to investments1,6
Pension obligations7
Other financial liabilities1
Other commitments5
Payments due by period
Total Less than 1 year
1 – 5 years Thereafter
5,081
3,184
27,757
1,390
421
135
111
1,843
191
655
181
12,795
203
421
96
10
1,280
124
1,457
624
11,894
574
-
8
43
144
67
2,969
2,379
3,068
613
-
31
58
419
-
Total contractual obligations
1 Refer to Note 10.5 b) – Financial liabilities by contractual maturity to the Consolidated financial statements for details.
2 Undiscounted value. Excludes periodic payment orders and the liability for remaining coverage measured under the PAA.
3 Refer to Note 10.5 c) – Insurance and reinsurance contracts by maturity to the Consolidated financial statements for details.
4 Includes fixed payments, reduced by any incentives receivable, as well as operational costs and variable lease payments.
5 See Note 35 – Commitments and contingencies to the Consolidated financial statements for details.
6 See Note 7 – Financial liabilities related to investments to the Consolidated financial statements for details.
7 Represent the expected benefit payments for funded and unfunded plans. See Section 23 – Employee future benefits program and Note 31 –
Employee future benefits to the Consolidated financial statements for details.
40,113
15,765
14,811
9,537
64 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 25 - Foreign currency management
25.1 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.
Dec. 31, 2023
As at
Dec. 31, 2022
Q4-2023 Q4-2022
Average rates for the periods
2022
2023
1.325
1.689
1.463
1.354
1.637
1.449
1.362
1.690
1.465
1.357
1.594
1.386
1.350
1.679
1.460
1.302
1.607
1.370
Table 40 – Foreign currency rates
Foreign currency vs CAD
USD
GBP
EUR
25.2 Currency hedging
Net investment 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 debt in foreign currency as per our internal risk appetite,
which we aim to keep below 40% of total foreign currency.
Operational/ cash flow hedging
Net exposure by currency
(as a % of common shareholders’ equity)
December 31, 2023
CAD
USD
GBP
Euro
2%
19%
• 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%
61%
In September 2023, in connection with the DLG brokered commercial lines acquisition, we
entered into foreign currency forward contracts to hedge the currency risk related to the
purchase price and the initial carrying value of the business. After the closing of the acquisition in October 2023, the purchase price
hedges were settled and the net investment hedges were designated as a hedge of net investments in foreign operations.
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 65
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
RISK MANAGEMENT
Section 26 - Overview
We designed the Enterprise Risk Management (ERM) Framework to ensure effective management and monitoring of the risks that
Intact is exposed to in order to protect our business, clients, employees and stakeholders, while delivering on our promises to our
shareholders. 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 effective 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 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. In some circumstances, we choose to avoid certain risks by exiting lines of businesses that exceed our risk
appetite or are not expected to achieve our long-term profitability targets. Residual risks that are within the Board approved risk
tolerance are acceptable in the pursuit of our strategic objectives.
66 INTACT FINANCIAL CORPORATION
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Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 27 - Risk management structure
INTACT FINANCIAL CORPORATION 67
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Management’s Discussion and Analysis for the year ended December 31, 2023
(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
The Risk Management Committee assists the Board of Directors in overseeing the management of the Company 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.
Governance and
Sustainability
Committee
The Governance and Sustainability Committee (the “GSC”) ensures a high standard of governance, compliance, and
ethics in the Company, including its pension funds and that the Company meets its legal requirements and engages in
best practices as determined by the Board of Directors.
In this regard, the GSC oversees, amongst others: (i) the governance framework of the Company, its subsidiaries and
its pension plans, (ii) the compliance framework, (iii) the compliance programs of the Company and its subsidiaries
which include related party transactions, market conduct programs and policies, as well as the implementation of
corporate compliance initiatives and (iv) the Company’s ESG framework, performance thereunder and related
reporting.
Human Resources
and Compensation
Committee
The Human Resources and Compensation Committee assists the Board of Directors in fulfilling its governance
supervisory responsibilities for strategic oversight of the Company’s human capital, including organization
effectiveness, succession planning and compensation, and the alignment of compensation with the Company’s
philosophy and programs consistent with the overall business objectives of the Company. Compensation includes base
salaries, benefits, pension plans and incentive programs of the employees, management and executives.
Audit Committee
The Audit Committee assists the Board of Directors in its oversight of (i) the integrity, fairness and completeness of the
Company’s financial statements and financial information; (ii) the accounting and financial reporting process; (iii) the
qualifications, performance and independence of the external auditors; (iv) the performance of the internal finance
function and audit function; (v) the quality and integrity of internal controls and; (vi) actuarial practices of the Company.
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, assessment, responding, monitoring and reporting to the RMC of the main risks facing the
Company, including periodic review and evaluation of the top risks and emerging risks profiles. The main risk
categories 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.
68 INTACT FINANCIAL CORPORATION
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Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 28 - 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 policies 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:
28.1 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
Governance and Sustainability
Committee periodically receives
reports on all important litigation
involving the company, whether
in the ordinary course of
business 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
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 that
remain independent of
operations.
The EVP & Chief Legal Officer
and Group Chief Compliance
Officer report to the Board of
Directors and its committees on
material matters, including with
respect to privacy and customer
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 Code of Conduct – Living our Values, and employees sign a confirmation that they have reviewed and complied
with them annually.
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Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 29 - Enterprise Risk Management
29.1 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
29.2 Guiding Principles
Our business strategies and capital management decisions are tied to the risks the company is prepared to accept, mitigate, transfer 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
70 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
29.3 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.
29.4 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.
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Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
29.5 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.
72 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
29.6 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
The occurrence of a major earthquake may produce significant damage in large, heavily populated areas.
Potential impact
How we manage this risk
Insurance risk
The occurrence of a major earthquake could have
a significant impact on our profitability and
financial condition and that of the entire P&C
insurance industry in Canada. Depending on the
magnitude of the earthquake, its epicentre and the
extent of the damage, the losses could be
substantial even after significant reinsurance
recoveries of IFC treaties. There could also be
significant additional costs to find the required
reinsurance capacity upon further renewals. In
addition, we could be subject
to increased
Insurance
assessments
Compensation Corporation (PACICC) leading to
further costs if other insurers are unable to meet
their contractual obligations with their clients.
the P&C
from
Our risk management strategy consists of regular monitoring of insured value accumulation and
concentration of risks. We use earthquake risk models, with adjustments for non-modelled
losses, 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 22.2 – 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 -3.8% of BVPS.
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 were fully executed in 2023 and resulted in a
significant reduction in gross earthquake exposure.
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Management’s Discussion and Analysis for the year ended December 31, 2023
(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. In 2023, this
was increasingly evident as we incurred elevated catastrophe losses related to weather events.
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.
Physical and transition risks may also lead to liability risk, such as the risk of climate-related claims under liability policies, as well as the risk arising
from other climate-related litigation or direct actions against the Company. For instance, compensation could be sought for losses resulting from an
alleged failure of the Company to manage the climate-related risks outlined above, from allegations related to “greenwashing” in the Company’s
representations or from climate activism-driven actions. Such litigation or direct actions may also pose reputational risk.
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, hail
and flooding in the west, and wind, 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.
There were many examples in 2023 including wildfires (Halifax & Kelowna),
flooding, severe storms, and an ice storm that materially impacted our
earnings. These types of events are likely to 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 ownership 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 19 – 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 22.2 –
Reinsurance for details on our reinsurance program. Changes in the
cost and/or availability of reinsurance can significantly impact our
ability to manage the physical risk associated with climate change.
Transition risk
Investments: See Section 19.2 – Impact of climate change on our
business for more details on initiatives undertaken by Intact
Investment Management (IIM) to help mitigate transition risk in our
investment portfolio.
74 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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
from natural or non-natural
Claims resulting
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 personal and
commercial customers and in our specialty lines
business. We may be adversely affected by large-
scale
simultaneously
compromise the systems of many of our insureds.
cyber-attacks
that
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 -6.4% of BVPS
above our expected annual catastrophe losses.
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, we implemented stronger exclusions related
to cyber war/nation state activity and the failure of critical infrastructure in our commercial cyber
insurance policies to partially mitigate the impact of a systemic cyber event.
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 75
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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.
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)
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, including purchasing insurance directly from auto
manufacturers, or through 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 our
wholly-owned subsidiary On Side Restoration, we have vertically integrated
an important supply chain vendor to provide emergency and restoration
services for property insurance clients.
• 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). With recent advancements in generative artificial intelligence
applications, we expect this trend will accelerate in the coming years.
76 INTACT FINANCIAL CORPORATION
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Management’s Discussion and Analysis for the year ended December 31, 2023
(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. In 2023, inflation trended
downwards towards central bank targets while equity markets rebounded. The current geo-political environment increases uncertainty in financial
markets with a possible resurgence of inflation, including upward pressure on oil prices and the potential for global supply-chain disruptions.
See Section 21.2 – Capital market 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. 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.
General economic conditions, geo-political
conditions, social unrest and many other factors
can also adversely affect the equity markets and,
consequently,
the equity
securities we own and ultimately affect the timing
and level of realized gains or losses.
fair value of
the
Our preferred share portfolio depreciates in value
as a result of negative developments in interest
rates, credit or liquidity markets.
Our fixed income portfolio may experience
defaults resulting in impairments and lower
income prospectively.
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. 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
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
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Management’s Discussion and Analysis for the year ended December 31, 2023
(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.
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 22.1 – 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. In 2023,
we continued to receive favourable judgments related to
COVID-19 business interruptions cases.
We continue to closely monitor 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.
78 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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, a poor estimate of the future experience
of several factors, or risk selection inadequacy.
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;
unclear wording;
deviation from underwriting
guidelines.
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 79
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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 regulators with their own set of requirements. This includes the Prudential Regulation Authority, Financial Conduct Authority,
Central Bank of Ireland and Commissariat aux Assurances in the UK and International region.
80 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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.
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 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.
To reduce the risk of breaching the regulatory capital
requirements, we have Board approved thresholds for the
regulatory capital ratios in all jurisdictions in which we operate.
We operate above these thresholds under normal circumstances
to reduce the likelihood of regulatory intervention. Our Enterprise
Risk Committee regularly review risks related to solvency and
uses stress testing to identify vulnerabilities and areas for
possible remediation. Our capital management policy contains
guidelines to help ensure that we maintain adequate capital to
withstand adverse event scenarios and has documented
procedures to take corrective actions should any unanticipated
conditions arise.
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 29.8 – Own Risk and Solvency
Assessment.
INTACT FINANCIAL CORPORATION 81
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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.
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:
•
loss, which also
includes
financial
lost
productivity, remediation costs, and costs
associated with potential legal action;
include
regulatory action, which may
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 2023 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. 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.
82 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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 undertook the modernization of our financial
reporting systems which supported the revamp of our financial reporting process.
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 83
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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
increased
industry as well as
litigation. Such events may further increase
our costs of doing business and adversely
affect our profitability by impeding our ability to
market our products and services, requiring us
to change our products or services or
increasing the regulatory burdens under which
we operate. The periodic negative publicity
around insurance and related businesses may
negatively impact our financial results and
financial condition.
Social media could amplify the impact of a
reputational issue. It could result in further
damage to our reputation and impair our future
growth prospects.
To mitigate these risks, we have established escalation procedures to help ensure that our
customers have multiple channels to express any dissatisfaction. These include a National
Customer Experience Team in Canada and an Ombudsman’s Office which offer the opportunity for
customer dissatisfaction to be resolved. In addition, management proactively identifies potential
issues and performs an additional review to help ensure that our customers are treated fairly.
The wording of our insurance policies is reviewed periodically by management to detect and
remediate potential issues before they arise.
New products and significant changes in existing products undergo a rigorous product development
life cycle including an independent review by the risk management function prior to launch. Potential
reputational issues can be identified in the early stages of product development and, if required,
changes are implemented prior to launch.
The Enterprise Risk Committee and regional risk committees regularly monitor our operations to
identify situations that can negatively affect customer satisfaction.
We also invest in digital tools and artificial intelligence to enhance the customer experience and
reduce the possibility of negative publicity arising from interactions with our customers. We are
closely monitoring our Net Promoter Scores from Claims and Underwriting to ensure that we
continue to deliver an experience to our customers that is second to none.
84 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Social unrest risk
Risk we are facing
Insurance risk
Potential catalysts for social unrest include, 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.
We stress tested our exposures against a severe social unrest scenario across our geographic
locations. We concluded that we have 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).
In 2022, we conducted a table-top exercise to test the preparedness of our operations in the
event of social unrest.
Third party risk
Risk we are facing
Operational risk
The acceleration of digitalization has increased the reliance on third parties and increases the risk of disruption to our operations. The work-from-
home context has increased our reliance on critical utilities/communications infrastructures. Moreover, the economic downturn increases supplier
failure risk and adds pressure on supply chain quality of service and capacity.
Potential impact
How we manage this risk
Our third parties may face internal and external
incidents that could compromise the confidentiality
of our information and/or limit the service level.
Widespread power grid, internet or phone failure
could limit our operations, impact our customer
support and
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 85
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Failure of an acquisition or divestiture
Risk we are facing
Strategic risk
— Our primary strategy is to pursue consolidation in the Canadian market and expansion in foreign markets where we can deploy our expertise in
data analytic, pricing, underwriting, claims management and multi-channel management. Specialty lines is another key avenue of growth where
—
we can leverage our expertise and leading-edge customer experience.
In 2023, we announced the acquisition of Direct Line Insurance Group (“DLG”) plc’s brokered Commercial Lines operations and the sale of our UK
direct Personal Lines operations to Admiral Group plc.
Potential impact
How we manage this risk
Key risks related to the DLG transaction
include the following: valuation, execution &
customer risk, talent management,
technology, integration, and credit risk.
We are a proven industry consolidator with a track record of successful P&C acquisitions since 1988.
We have a dedicated corporate development team that follows a rigorous selection process. Our
approach to conducting due diligence to assess all the risks and opportunities is well developed and
is consistently executed. We also assign dedicated and experienced task forces to ensure a swift and
effective integration with seamless impact to our customers. There is also strong oversight by the
Board of Directors regarding acquisitions.
29.7 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.
86 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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 87
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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 24.5 –
Ratings for more details.
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.
Employee defined benefit pension plan risk
We sponsor defined benefit pension plans in several jurisdictions, including Canada and the U.K. These plans are exposed to financial
market risk, credit risk, and longevity risk. In 2023, we completed a UK pension buy-in transaction, a significant step in de-risking the
UK pension plans. See Section 23 – Employee future benefit programs and Note 31 in our Consolidated financial statements.
Artificial Intelligence risk
The recent developments in generative AI represent increasing risks. This includes risks related to AI safety, ethics, privacy or
exploitation. AI could have effects on several of our risks including cyber security, where AI may increase the likelihood and impact of
cyber attacks as hackers could exploit AI algorithms. In competition and disruption, there is prospect risk of AI algorithms creating risk
profiles quickly and reducing the cycle times for completing the purchase of an insurance policy. It also presents the risk of smaller
insurance carriers growing rapidly with the enhanced technology. There are government and regulatory risks as they could make it
onerous for us to implement new AI technologies or tools. Increases in fraud could become present as AI could be used to make
fraudulent claims or facilitate fraud in the claims cycle. Furthermore, there is an increased likelihood of system failures or errors arising
from AI systems implemented to automate and streamline processes and increase operational efficiency.
88 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
29.8 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 24
– Capital management for details.
In 2023, 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 is
more weighted to insurance risk than 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.
29.9 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 $2,631 million as
at December 31, 2023 ($3,616 million as at December 31, 2022).
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, 2023 (105% as at December 31, 2022).
Structured settlements
We have obligations to pay certain fixed amounts to claimants on a recurring basis and thus have purchased annuities from various
Canadian life insurers to provide for those payments. 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. 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. These off balance-sheet annuity agreements have a fair value of $1,488 million as at December 31, 2023
($1,660 million as at December 31, 2022).
INTACT FINANCIAL CORPORATION 89
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 30 - Sensitivity analysis to market risk
Sensitivity analysis is a risk management technique that assists management in ensuring that risks assumed remain within our risk
tolerance level. Sensitivity analysis involves varying a single factor to assess the impact that this would have on our results and financial
condition, excluding any management action. Actual results can differ materially from these estimates for a variety of reasons and
therefore, these sensitivities should be considered as directional estimates.
Table 41 – Sensitivity analysis to market risk (after tax)
Periods ended December 31,
Equity price risk
Common share prices (10% decrease)1
Preferred share prices (5% decrease) 2
Property price risk (10% decrease)
Interest rate risk (100 basis point increase)3
Debt securities 4,5
Net liability for incurred claims6, 8
Defined benefit pension plan obligation, net of related debt securities
and annuity buy-in insurance
Currency risk7
Strengthening of CAD by 10% vs all currencies
Net assets of foreign operations in8:
Net
income
OCI
BVPS
Net
income
OCI BVPS
2023
2022
(158)
(14)
(35)
(301)
350
(66)
(36)
-
(1.26)
(0.28)
(0.20)
(166)
(15)
(36)
(87)
(38)
(22)
(1.44)
(0.30)
(0.33)
(424)
-
(4.07)
1.96
(368)
319
-
(386)
-
(75)
(4.30)
1.82
(0.43)
-
84
0.47
USD
GBP
(5)
3
(234)
(286)
(1.34)
(1.59)
(11)
4
(219)
(235)
(1.31)
(1.32)
1 Including the impact of common shares (net of any equity hedges, including the impact of any impairment).
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 of approximately 48% in government-related securities and 52% in corporate-related
securities.
6 Represents the net liability for incurred claims before net payables and claims reported under the GMM, including the impact of a +0.5% change in the discount rate of net
periodic payment orders.
7 After giving effect to forward-exchange contracts.
8 2022 comparatives were restated.
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; and
impact on our pension plans has been considered
FVTOCI debt securities in an unrealized loss position, as reflected in AOCI, may be realized through sales in the future.
90 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
ADDITIONAL INFORMATION
Section 31 - 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:
• Underwriting profitability and premiums volume (see Section 31.1)
• Operating net investment result & other corporate results (see Section 31.2)
• Consolidated operating performance (see Section 31.3)
• Non-operating results (see Section 31.4)
• Relative performance KPIs (see Section 31.5)
• Consolidated performance KPIs (see Section 31.6)
• Equity & Financial strength (see Section 31.7)
Non-GAAP financial measures and Non-GAAP ratios are marked with an asterisk* throughout the following section.
For the definitions of our non-GAAP key performance indicators, please see Section 35.2 – KPI definitions.
31.1 Underwriting profitability and premiums volume
Operating DPW, Operating DPW growth, Operating DPW on a continuing pro-forma basis, Operating net underwriting revenue
and Operating net underwriting growth
• Our top line consolidated performance is measured based on operating direct premiums written (Operating DPW), a
supplementary financial measure not presented in the Consolidated financial statements. Operating DPW represents the total
amount of premiums for new and renewal policies written during the reporting period, excluding industry pools, fronting and exited
lines. Our operating DPW growth is measured based on the change in operating DPW year-over-year and represents the growth
or decline in our top line measure.
• Operating DPW on a continuing pro-forma basis is a supplementary measure not presented in the Consolidated financial
statements. It represents Operating DPW adjusted to include 12 months of Direct Line’s brokered commercial lines operations and
excludes UK personal lines operations (home, pet and motor) for all of 2023.
• Operating net underwriting revenue*, a Non-GAAP financial measure, is comprised of earned premiums net of reinsurance
contracts (previously ‘Operating NEP’) and other revenues directly related to our insurance activities including 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. The closest GAAP measure is Insurance revenue, as reported under IFRS, net of expense from reinsurance
contracts, as reported under IFRS.
• Our operating net underwriting revenue growth* is measured based on the change in operating net underwriting revenue,
which is a non-GAAP ratio. This represents the growth or decline in operating net underwriting revenue year-over-year (as defined
above).
•
For our non-Canadian operating segments, growth is also measured in constant currency, which is calculated by applying the
respective exchange rates in effect for the current year to the previous year. We believe that this enhances the analysis of our
financial performance with comparative periods as it excludes the impact of foreign currency fluctuations.
INTACT FINANCIAL CORPORATION 91
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Underwriting income (loss) and combined ratio
• Our underwriting performance* is measured based on the 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. 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 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. Operating net claims* is a Non-GAAP operating financial measure comprised of claims related to our underwriting
activities, including losses on onerous contracts, net of reinsurance.
• To provide more insight into our underlying current year performance, we further analyze 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*, including reinstatement premiums, are used in the calculation of the CAT loss ratio.
Reported CAT losses can either be weather-related or not weather-related and exclude those from exited lines. 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 (on an undiscounted basis).
▪ 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.
• Operating net underwriting expenses* is a Non-GAAP operating financial measure comprised of commissions (including
regular and variable commissions), premium taxes and general expenses related to our underwriting activities, as well as the
amortization of our deferred allocated acquisition costs.
A reconciliation of our underwriting-related non-GAAP financial measures to their closest comparable GAAP measures
can be found on the following page, in Tables 42-43.
92 INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
a
t
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6
8
5
)
8
8
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(
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Table 42 – Reconciliation of underwriting results on a MD&A basis with the Consolidated financial statements (quarterly)
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Sum of: Operating net claims ($2,900
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INTACT FINANCIAL CORPORATION
)
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(
2
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(346)
m
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158
(49)
7
(122)
)
1
1
3
(
6
5
(122)
4
84
(162)
3
2
1
35
(162)
)
6
4
3
(
)
6
8
5
(
Expense from reinsurance
Financial statements
FS
IFRS 17
Quarter ended December 31, 2023
Insurance revenue
6,525
Insurance service
expense
(5,540)
Expense from reinsurance
(586)
contracts
contracts
Income from reinsurance
Insurance service result
388
787
Quarter ended December 31, 2022
Insurance revenue
6,404
(5,621)
3
2
0
2
,
1
3
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Insurance service
expense
contracts
contracts
1
2
3
4
5
6
7
8
9
r
o
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s
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l
a
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A
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Reconciling items in the table above:
a
n
o
i
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s
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s
i
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s
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Financial statements
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F
R
S
1
7
t
r
a
n
s
Twelve-month period ended December 31,
i
t
a
i
o
n
2023
n
d
y
p
Insurance revenue
e
r
a
e
r
m
Insurance service
u
m
expense
a
d
u
s
t
m
e
n
t
s
n
c
Management’s Discussion and Analysis for the year ended December 31, 2023
g
o
n
m
p
g
(in millions of Canadian dollars, except as otherwise noted)
e
m
e
n
x
s
s
p
Table 43 – Reconciliation of underwriting results on a MD&A basis with the Consolidated financial statements (year-to-date)
s
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FS
s
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IFRS 17
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Income from reinsurance
n
t
contracts
r
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c
Insurance service result
t
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f
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Twelve-month period ended December 31,
a
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2022
c
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Insurance revenue
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-
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(3,056)
(2,442)
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1
5
2,442
3,056
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(244)
(417)
(417)
2
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8
7
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4
4
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(
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6
6
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6
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2
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Total
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e
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h
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MD&A
t
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h
IFRS 17
e
a
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l
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5
e
n
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d
a
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d
6
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i
4,350 (18,234)
n
c
a
n
e
c
m
a
b
e
r
3,056
7
i
l
3
1
,
2
0
2
3
(2,442)
8
(178)
9
(6,392)
T
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5,292
t
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l
I
3,475
M
F
D
R
(2,913)
&
S
A
1
7
-
-
n/a
n/a
MD&A
20,365 Operating net underwriting revenue
Sum of: Operating net claims ($11,426
million) and Operating net underwriting
expenses ($6,808 million)
n/a
n/a
2,131 Underwriting income (loss)
19,522 Operating net underwriting revenue
(17,458)
Sum of: Operating net claims ($11,016
million) and Operating net underwriting
expenses ($6,442 million)
f
r
o
m
e
x
i
t
e
d
i
25,914
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n
R
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m
(22,750)
e
)
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c
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m
b
n
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t
i
o
n
r
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s
u
l
t
u
n
d
e
r
Insurance service
expense
I
F
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S
(3,475)
(
e
x
p
e
n
s
e
)
)
(
t
r
e
a
Expense from reinsurance
t
e
d
contracts
a
Income from reinsurance
s
n
contracts
o
n
-
Insurance service result
o
p
e
r
a
t
i
n
g
)
n
o
n
Reconciling items in the table above:
-
o
p
e
r
a
t
i
n
g
)
(
t
r
e
a
t
e
d
a
s
2,602
2,913
1
)
2,913
l
i
n
e
s
3,475
(2,913)
-
-
(406)
536
(
5
3
8
)
(
2
(438)
,
9
1
3
)
3
,
4
7
5
53
-
-
(438)
n
/
a
n
/
a
2
,
0
6
4
130
U
n
d
e
r
r
i
t
i
n
g
i
n
c
o
m
e
(
6
(132)
,
3
9
2
)
1
9
,
5
2
2
(132)
S
O
u
p
m
e
r
a
o
t
f
i
:
n
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n
e
t
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p
e
r
a
t
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n
g
n
e
t
(
$
1
1
,
0
1
6
u
n
d
e
r
w
r
i
t
i
n
g
r
e
v
e
n
u
e
5
,
2
9
2
(
1
7
,
4
5
8
)
m
i
l
l
i
o
n
)
a
n
d
O
p
e
r
a
t
i
n
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t
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n
d
e
r
w
r
i
t
i
n
g
53
e
x
p
e
n
s
e
s
(
$
6
,
4
4
2
m
i
l
l
i
o
n
)
2,487
(
1
7
8
)
(166)
(
2
,
4
4
2
)
3
,
0
5
6
181
4
,
3
5
0
(142)
(
5
,
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2
)
(166)
n
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a
n
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e
x
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,
1
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15
U
n
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r
w
r
i
t
i
n
g
i
n
c
o
m
e
(
1
8
,
2
3
4
)
-
m
i
l
l
i
o
n
)
S
u
m
o
f
:
a
n
d
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r
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t
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p
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r
a
t
i
n
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e
t
(
$
1
1
,
4
2
6
2
0
,
3
6
5
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p
e
r
a
t
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n
g
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t
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d
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r
w
r
i
t
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n
g
r
e
v
e
n
u
e
(
$
6
,
8
0
8
m
i
l
l
i
o
n
)
Adjustment to present results net of reinsurance
w
Adjustment to exclude net underwriting revenue, net claims, net underwriting expenses from exited lines (treated as non-operating)
Adjustment to include indirect underwriting expenses (from Other income and expense under IFRS)
Adjustment to exclude the non-operating pension expense
M
D
&
A
c
Adjustment to reclassify intercompany commissions (to Distribution income & Other corporate income (expense))
a
m
s
Adjustment to exclude Net insurance service results from claims acquired in a business combination (treated as non-operating)
c
a
m
s
(
l
o
s
s
)
(
l
o
s
s
)
i
l
i
l
Adjustment to normalize discount build in IFRS 17 transition year (from Net insurance financial result under IFRS)
Adjustment to reclassify Assumed (ceded) commissions and premium adjustments
Adjustment to reclassify Net insurance revenue from retroactive reinsurance contracts
2
3
4
5
6
7
8
9
94 INTACT FINANCIAL CORPORATION
-
(538)
2,064 Underwriting income (loss)
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Table 44 – Reconciliation of the components within Operating net claims
Q4-2023 Q4-2022
Restated
2023
2022
Restated
Operating net claims, as reported in Tables 42-43
Remove: net current year CAT losses (Table 15)
Remove: favourable (unfavourable) PYD
Operating net claims excluding current year CAT losses and PYD
Operating net underwriting revenue
Underlying current year loss ratio
CAT loss ratio (Table 15)
(Favourable) unfavourable PYD ratio (Table 14)
Claims ratio
2,757
(199)
272
2,830
5,259
53.9%
3.8%
(5.2)%
52.5%
2,900
(171)
233
2,962
5,041
58.7%
3.4%
(4.6)%
57.5%
Table 45 – Reconciliation of the components within Operating net underwriting expenses
Operating net underwriting expenses, as reported in Tables 42-43
Commissions
General expenses
Premium taxes
Operating net underwriting revenue
Commissions ratio
General expenses ratio
Premium taxes ratio
Expense ratio
Claims ratio, as reported in Table 44
Combined ratio (discounted)
Q4-2023 Q4-2022
Restated
1,715
834
732
149
5,259
15.8%
13.9%
2.8%
32.5%
52.5%
85.0%
1,656
759
754
143
5,041
15.1%
15.0%
2.8%
32.9%
57.5%
90.4%
11,426
(1,339)
958
11,045
20,365
54.2%
6.6%
(4.7)%
56.1%
2023
6,808
3,267
2,979
562
20,365
16.0%
14.6%
2.8%
33.4%
56.1%
89.5%
11,016
(836)
936
11,116
19,522
56.9%
4.3%
(4.8)%
56.4%
2022
Restated
6,442
3,120
2,770
552
19,522
16.0%
14.2%
2.8%
33.0%
56.4%
89.4%
A combined ratio below 100% indicates a profitable underwriting result. A combined ratio over 100% indicates an unprofitable underwriting result.
31.2 Operating net investment result & other corporate results
Operating net investment result
Operating net investment result* is the sum of the following two non-GAAP financial measures (see reconciliation in Tables 50-
51):
• Operating net investment income*, which represents Net investment income as presented in the financial statements,
excluding the investment income from the RSA Middle-East exited operations (see Section 13.2 – Income (loss) from
exited lines), as presented in Table 46.
• Net unwind of discount on claims liabilities*, a non-GAAP financial measure defined in the table below, which represents
the passage of time of the effect of the discounting of our claims liabilities, as presented in Table 47.
Table 46 – Reconciliation of Operating net investment income to Net investment income, as reported under IFRS
Q4-2023 Q4-2022
Restated
Net investment income, as reported under IFRS
Remove: investment income from the RSA Middle-East exited operations
Operating net investment income
376
-
376
279
-
279
2023
1,346
-
1,346
2022
Restated
931
(4)
927
INTACT FINANCIAL CORPORATION 95
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Table 47 – Reconciliation of Net unwind of discount on claims liabilities to Net insurance financial result, as reported under IFRS
Q4-2023 Q4-2022
Restated
2023
2022
Restated
Net insurance financial result, as reported under IFRS
Remove: Changes in discount rates and other financial assumptions1
Remove: Net foreign currency gains (losses) 1
Remove: Net insurance financial result from claims acquired in a business
(573)
394
(40)
(82)
39
(73)
combination
(1)
(117)
1 Included within Note 24 –Net investment return and net insurance financial result from the Consolidated financial statements.
Net unwind of discount on claims liabilities
2
(217)
(894)
156
(94)
(52)
(884)
439
(962)
155
(10)
(378)
Other corporate results
• Distribution income* is an operating measure used to report the performance of our distribution channel, which includes
operating income before interest, taxes and amortization from our consolidated brokers, broker associates, MGAs and other
supply chain related businesses. Other income and expense, as reported under IFRS (for our consolidated entities) as well
as our Share of profit from investments in associates and joint ventures (for those that we do not consolidate) under IFRS
are the closest GAAP measures.
•
Total finance costs* includes all finance costs, including those from our broker associates, which are accounted for using
the equity method under IFRS. Other finance costs, as reported under IFRS, is the closest GAAP measure.
• 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 and expense, as reported under
IFRS, is the closest GAAP measure.
A reconciliation of the above non-GAAP financial measures to their closest comparable GAAP measures can be
found on the following pages, in Tables 50-51.
31.3 Consolidated operating performance
PTOI
• Pre-tax operating income (PTOI)*, which is used in the calculation of NOI, represents the Income before income taxes (closest
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*.
• 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 4 – Operating performance by segment for the details of PTOI by component and segment.
Table 48 – Reconciliation of PTOI to Income before income taxes, as reported under IFRS
Income before income taxes, as reported under IFRS
Add: share of income tax expense of broker associates
Remove: Pre-tax non-operating results (Table 18)
PTOI
Add: operating income tax expense
Remove: net operating income attributable to non-controlling interests (NCI)
NOI attributable to shareholders (Table 49)
Q4-2023 Q4-2022
Restated
421
736
7
205
948
(161)
(7)
780
6
221
648
(117)
(7)
524
2023
1,804
35
829
2,668
(508)
(15)
2,145
2022
Restated
3,007
36
(341)
2,702
(529)
(20)
2,153
96 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
NOI attributable to common shareholders, NOIPS and OROE
• 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, from acquisition-related items or special items, or that are not part of our normal activities. We believe that analysing
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 result 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.
• Net operating income (NOI) attributable to common shareholders* represents the Net income attributable to shareholders
(closest GAAP measure), excluding the after-tax impact of Non-operating results*, net of net income (loss) attributable to non-
controlling interests (non-operating component), preferred share dividends and other equity distribution.
Table 49 - 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 results (Table 18)
Remove: non-operating tax expense (benefit)1
Remove: non-operating component of NCI
NOI attributable to shareholders
Remove: preferred share dividends and other equity distribution
NOI attributable to common shareholders
Divided by weighted-average number of common shares (in millions)
NOIPS, basic and diluted (in dollars)
NOI attributable to common shareholders for the last 12 months
Adjusted average common shareholders’ equity, excluding AOCI (Table 57)
OROE for the last 12 months
1 See Table 52 – Acquisition-related gains (losses) and other non-operating results for more details.
2023
1,316
829
-
-
2,145
(84)
2,061
176.2
11.70
2022
Restated
2,454
(341)
64
(24)
2,153
(60)
2,093
175.6
11.92
Q4-2023 Q4-2022
Restated
346
524
205
51
-
780
(28)
752
178.3
4.22
2,061
14,518
14.2%
221
(43)
-
524
(16)
508
175.3
2.91
2,093
15,001
14.0%
INTACT FINANCIAL CORPORATION 97
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Table 50 – Reconciliation of consolidated results on a MD&A basis with the Consolidated financial statements (quarterly)
MD&A captions
Pre-tax
As presented in the Financial
statements
Distribution
income
For the quarter ended December 31, 2023
Total
finance
costs
Other
operating
income
(expense)
Operating
net
investment
result
Total
income
taxes
Non-
operating
results
Underwriting
income
(loss)
Total
F/S
caption
78
(38)
(162)
909
Total, as reported in MD&A
109
(62)
(45)
159
For the quarter ended December 31, 2022 (Restated)
Insurance service result
Net investment income
Net gains (losses) on investment
portfolio
Net insurance financial result
Share of profits from investments
in associates and joint ventures
Other net gains (losses)
Other income and expense
Other finance costs
Acquisition, integration and
restructuring costs
Income tax benefit (expense)
Insurance service result
Net investment income
Net gains (losses) on investment
portfolio
Net insurance financial result
Share of profits from investments in
associates and joint ventures
Other net gains (losses)
Other income and expense
Other finance costs
Acquisition, integration and
restructuring costs
Income tax benefit (expense)
376
(217)
38
(7)
(3)
(59)
1
(8)
532
(356)
(7)
22
(52)
(182)
(122)
(205)
787
(7)
(205)
(212)
37
(4)
(55)
695
279
(117)
35
(5)
(6)
(139)
83
(6)
38
22
(34)
(58)
(162)
(50)
(84)
(68)
(48)
(82)
787
376
532
(573)
22
22
(189)
(59)
(182)
(205)
673
279
(139)
18
38
(232)
(50)
(84)
(68)
Total, as reported in MD&A
94
(55)
(38)
162
(74)
(221)
485
98 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Table 51 – Reconciliation of consolidated results on a MD&A basis with the Consolidated financial statements (year-to-date)
MD&A captions
Pre-tax
As presented in the Financial
statements
Distribution
income
For the twelve-month period ended December 31, 2023
Total
finance
costs
Other
operating
income
(expense)
Operating
net
investment
result
Total
income
taxes
Non-
operating
results
Underwriting
income
(loss)
Total
F/S
caption
Insurance service result
Net investment income
Net gains (losses) on investment
portfolio
Net insurance financial result
Share of profits from investments
in associates and joint ventures
Other net gains (losses)
Other income and expense
Other finance costs
Acquisition, integration and
restructuring costs
Income tax benefit (expense)
149
2
(390)
2,548
1,346
(884)
167
(13)
(35)
151
(159)
(222)
249
(10)
(23)
50
(202)
(503)
(417)
(473)
(508)
(829)
2,131
Total, as reported in MD&A
467
(235)
(157)
462
For the twelve-month period ended December 31, 2022 (Restated)
Insurance service result
Net investment income
Net gains (losses) on investment
portfolio
Net insurance financial result
Share of profits from investments in
associates and joint ventures
Other net gains (losses)
Other income and expense
Other finance costs
Acquisition, integration and
restructuring costs
Income tax benefit (expense)
121
11
927
(378)
169
(12)
(36)
151
(174)
(177)
2,668
(166)
(438)
(198)
4
(326)
983
(18)
477
(228)
(353)
(557)
Total, as reported in MD&A
441
(189)
(163)
549
(593)
341
2,064
2,309
1,346
249
(894)
96
50
(627)
(222)
(503)
(473)
2,602
931
(326)
439
103
477
(689)
(177)
(353)
(557)
INTACT FINANCIAL CORPORATION 99
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
31.4 Non-operating results
Non-operating results
Non-operating results* include elements that arise mostly from changes in market conditions, from acquisition-related items or that
are not part of our normal activities. The following table provides the breakdown of non-operating results between acquisition-related
items as well as other non-operating results, showing the pre-tax and after-tax amount by line item.
Table 52 – Acquisition-related gains (losses) and other non-operating results
Amortization of acquired intangible assets
Acquisition and integration costs
Tax adjustment on acquisition-related items
Net result from claims acquired in a business combination
Acquisition-related gains (losses)
Net gains (losses) on investment portfolio excluding Net gain (loss) on
currency derivative economic hedges (acquisitions)
MYA and FX on claims liabilities
Non-operating pension expense
Other net gains (losses)
Income (loss) from exited lines
Restructuring and other non-operating costs
Other non-operating results
Non-operating results
Amortization of acquired intangible assets
Acquisition and integration costs
Tax adjustment on acquisition-related items
Net result from claims acquired in a business combination
Acquisition-related gains (losses)
Net gains (losses) on investment portfolio excluding Net gain (loss) on
currency derivative economic hedges (acquisitions)
MYA and FX on claims liabilities
Non-operating pension expense
Other net gains (losses)
Income (loss) from exited lines
Restructuring and other non-operating costs
Other non-operating results
Non-operating results
Q4-2023
Q4-2022 Restated
Pre-tax After-tax
Pre-tax After-tax
(74)
(86)
-
(1)
(55)
(66)
(2)
-
(66)
(61)
-
(1)
(161)
(123)
(128)
532
(354)
9
22
(158)
(95)
(44)
(205)
395
(264)
7
18
(122)
(167)
(133)
(256)
(139)
82
(15)
38
(35)
(24)
(93)
(221)
(49)
(46)
(1)
(2)
(98)
(116)
64
(11)
30
(29)
(18)
(80)
(178)
2023
Pre-tax After-tax
2022 Restated
Pre-tax After-tax
(270)
(255)
-
(3)
(528)
249
(62)
28
50
(313)
(253)
(301)
(829)
(204)
(193)
(6)
(2)
(405)
178
(44)
22
46
(244)
(382)
(424)
(829)
(254)
(294)
-
(5)
(553)
(326)
973
(43)
477
(126)
(61)
894
341
(193)
(228)
(4)
(5)
(430)
(316)
737
(31)
462
(104)
(41)
707
277
100 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Non-operating results are comprised of the following items:
• Net gains (losses) on investment portfolio arise mostly from changes in market conditions and investment decisions.
• MYA and FX on claims liabilities arises mostly from movements in interest rates and in foreign currency exchange rates,
which impact our claims liabilities.
o Following the adoption of IFRS 17, the restated 2022 MYA figures were adjusted to be equivalent to the 2022
MYA figures calculated under IFRS 4 (offset to Underwriting income (loss) and neutral to Net Income and
EPS). Considering the rapid rise of interest rates experienced in 2022, management believes that this
normalisation of discount build in transition year makes the results presented more comparable with their
expectations of future results.
• Non-operating pension expense for our Canadian pension plans is the difference between the total IAS 19 pension
expense and the operating pension expense calculated using the expected return on assets. For our UK pension plans,
the non-operating pension experience represents the net of the asset return on the DB pension plans assets and the
administrative expenses for these plans.
• Acquisition and integration costs arise following a strategic action and are non-recurring & non-underwriting related.
These include severances, retention bonuses, system integration, the initial net impact of a reinsurance coverage for
the purpose of an acquisition, as well as changes in the fair value of the contingent considerations.
• Restructuring and other costs include non-recurring reorganization costs not related to an acquisition, such as
impairment of IT systems related to our exited lines businesses and expenses related to the implementation of significant
new accounting standards.
• Other net gains (losses) include the gains (losses) on acquisition and sale of businesses as well as unrealized gains
(losses) related to certain venture investments remeasured at fair value or our distribution network.
•
Income (loss) from exited lines includes the underwriting results and net investment income from exited lines.
• Net result from claims acquired in a business combination is a result of IFRS 17 and applies to all claims from the RSA
acquisition in 2021. These will continue to be treated the same as other claims, in line with how we manage them, and
the net impact of applying the GMM under IFRS 17 to these claims will be reported separately, rather than classifying it
within our liabilities for incurred claims.
Table 53 – Reconciliation of MYA to Net insurance financial result, as calculated under IFRS
Net insurance financial result, as reported under IFRS
Remove: Unwind of discount on claims liabilities1
Remove: Normalisation of discount build in transition year
MYA and FX on claims liabilities
Q4-2023
Q4-2022
Restated
(573)
219
-
(354)
(82)
116
48
82
2023
(894)
832
-
(62)
2022
Restated
439
368
166
973
1 Included within Note 24 – Net investment return and net insurance financial result from the Consolidated financial statements.
INTACT FINANCIAL CORPORATION 101
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
31.5 Relative performance KPIs
Adjusted net income attributable to common shareholders, 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. 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.
• Adjusted net income attributable to common shareholders* represents the Net income attributable to shareholders (closest
GAAP measure), excluding the after-tax impact of acquisition-related items, preferred share dividends and other equity
distribution.
Table 54 – Reconciliation of AEPS and AROE to Net income attributable to shareholders, as reported under IFRS
Q4-2023 Q4-2022
Restated
2023
2022
Restated
Net income attributable to shareholders, as reported under IFRS
Adjustments, after tax (see Table 52 for details)
Remove: amortization of acquired intangible assets
Remove: acquisition and integration costs
Remove: net loss (gain) on currency derivative hedges (acquisitions)
Remove: tax adjustments on acquisition-related items
Remove: net result from claims acquired in a business combination
Adjusted net income attributable to shareholders
Remove: preferred share dividends and other equity distribution
Adjusted net income attributable to common shareholders
Divided by weighted-average number of common shares (in millions)
AEPS, basic and diluted (in dollars)
524
346
1,316
2,454
55
66
-
2
-
647
(28)
619
178.3
3.47
49
46
-
1
2
444
(16)
428
175.3
2.43
204
193
-
6
2
1,721
(84)
1,637
176.2
9.29
193
228
-
4
5
2,884
(60)
2,824
175.6
16.08
Adjusted net income attributable to common shareholders for the
last 12 months
Adjusted average common shareholders’ equity (Table 57)
AROE for the last 12 months
1,637
14,021
11.7%
2,824
14,720
19.2%
102 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the quarter ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
31.6 Consolidated performance KPIs
EPS and ROE
• 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.
• Net income attributable to common shareholders is determined in accordance with IFRS and excludes the dividends declared
on preferred shares and other equity distribution.
Table 55 – Reconciliation of ROE to Net income attributable to shareholders, as reported under IFRS
Q4-2023
Q4-2022
Restated
2023
2022
Restated
Net income attributable to shareholders
Remove: preferred share dividends and other equity distribution
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 57)
ROE for the last 12 months
524
(28)
496
178.3
2.78
1,232
14,021
8.8%
346
(16)
330
175.3
1.88
2,394
14,720
16.3%
1,316
(84)
1,232
176.2
6.99
2,454
(60)
2,394
175.6
13.63
INTACT FINANCIAL CORPORATION 103
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(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
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*
•
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.
• Pre-tax income* and PTOI* are presented on a consistent basis. These Non-GAAP financial measures are aligned with how
management analyzes the operating performance of our broker associates (recorded in Distribution income), which is on a pre-tax
basis.
Table 56 – 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) per MD&A (Tables 50-51)
Net income
Q4-2023 Q4-2022
Restated
421
736
6
7
743
(212)
531
427
(74)
353
2023
2022
Restated
1,804
35
1,839
(508)
1,331
3,007
36
3,043
(593)
2,450
Total effective income tax rate, as reported in the MD&A
28.5%
17.4%
27.6%
19.5%
Pre-tax operating income (PTOI) (Table 48)
Operating income tax benefit (expense)
Netted with: operating component of NCI
NOI attributable to shareholders
948
(161)
(7)
780
648
(117)
(7)
524
2,668
(508)
(15)
2,145
2,702
(529)
(20)
2,153
Operating effective income tax rate, as reported in the MD&A
16.9%
18.0%
19.0%
19.6%
104 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the quarter ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
31.7 Equity and Financial strength
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 is determined in accordance with IFRS, and excludes preferred
shares and other equity, as per IFRS.
• 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 and AOCI are determined in
accordance with IFRS, and excludes preferred shares and other equity, as per IFRS.
• We believe that adjusting for common share issuances or other significant capital transactions 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 57 – Adjusted average common shareholders’ equity and Adjusted average common shareholders’ equity, excluding AOCI
As at December 31,
Ending common shareholders' equity
Remove: significant capital transactions during the period
Ending common shareholders' equity, excluding significant capital transaction
Beginning common shareholders' equity
Impact of the initial application of IFRS 9
Beginning common shareholders' equity, adjusted for the impact of IFRS 9
Average common shareholders’ equity, excluding significant capital transaction
Weighted impact of significant capital transactions1
Adjusted average common shareholders’ equity
Ending common shareholders’ equity, excluding AOCI
Remove: significant capital transaction during the period
Ending common shareholders' equity, excluding AOCI and significant capital transaction
Beginning common shareholders' equity, excluding AOCI
Impact of the initial application of IFRS 9
Beginning common shareholders' equity, excluding AOCI and adjusted for the impact of IFRS 9
Average common shareholders’ equity, excluding AOCI and significant capital transaction
Weighted impact of significant capital transactions1
Adjusted average common shareholders’ equity, excluding AOCI
1 Represents the net weighted impact of the September 13, 2023 and February 27, 2023 significant capital transactions.
2023
14,571
638
15,209
14,521
(2)
14,519
14,864
(843)
14,021
14,892
638
15,530
15,612
(420)
15,192
15,361
(843)
14,518
2022
Restated
14,521
-
14,521
14,919
n/a
n/a
14,720
-
14,720
15,612
-
15,612
14,389
n/a
n/a
15,001
-
15,001
INTACT FINANCIAL CORPORATION 105
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Total capital margin and regulatory capital ratios
•
The capital strength of the group is measured by the Total capital margin, a supplementary financial measure. 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, which are also supplementary financial measures. See Section 24 – 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 weighted-average CAL for all regulated Canadian insurance entities is 169% 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&I.
Book value per share (BVPS) and BVPS (excluding AOCI)
•
•
The evolution of our book value is measured using BVPS, a supplementary financial measure, which is calculated using GAAP
measures (as defined below). 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 supplementary financial measure, 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.
Table 58 – Calculation of BVPS and BVPS (excluding AOCI)
As at December 31,
Equity attributable to shareholders, as reported under IFRS
Remove: Preferred shares and other equity, 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)
2023
16,190
(1,619)
14,571
321
14,892
178.3
2022
Restated
15,843
(1,322)
14,521
1,091
15,612
175.3
BVPS
BVPS (excluding AOCI)1
82.84
89.07
1 The Company adopted IFRS 9 retrospectively on January 1, 2023 and elected to recognize any IFRS 9 measurement differences by adjusting its Consolidated balance
sheet on January 1, 2023, as a result comparative information was not restated. Prior periods continue to be reported under IAS 39 – Financial instruments: recognition
and measurement (“IAS 39”).
81.71
83.51
106 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Adjusted total capital and Adjusted debt-to-total capital ratio
• 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 and preferred shares
instruments held by subsidiaries, at the same date.
• Adjusted debt-to-total capital ratio*, which is a Non-GAAP ratio, is calculated using debt outstanding (excluding hybrid
debt)* divided by adjusted total capital.
•
Total leverage ratio, which is a Non-GAAP ratio, is calculated using debt outstanding, preferred shares and other equity
(including NCI) divided by adjusted total capital.
Table 59 – Reconciliation of Debt outstanding (excluding hybrid debt) and 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
Debt outstanding (excluding hybrid debt)
Debt outstanding, as reported under IFRS
Equity attributable to shareholders, as reported under IFRS
Preferred shares from Equity attributable to non-controlling interests
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 and other equity, as reported under IFRS
Preferred shares from Equity attributable to non-controlling interests
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,
2023
Sept. 30,
2023
Dec. 31,
2022
Restated
5,081
(247)
4,834
5,081
16,190
285
21,556
4,834
21,556
22.4%
5,081
1,619
285
6,985
21,556
32.4%
22.4%
10.0%
4,927
(247)
4,680
4,927
15,392
285
20,604
4,680
20,604
22.7%
4,927
1,619
285
6,831
20,604
33.2%
22.7%
10.5%
4,522
(247)
4,275
4,522
15,843
285
20,650
4,275
20,650
20.7%
4,522
1,322
285
6,129
20,650
29.7%
20.7%
9.0%
INTACT FINANCIAL CORPORATION 107
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 32 - Accounting and disclosure matters
32.1 Transition to IFRS 17 – Insurance contracts and IFRS 9 – Financial instruments
2023 is the first year reported under IFRS 17 and IFRS 9. 2022 comparatives were restated for IFRS 17 only. For IFRS 9, the transitional impact
was reflected in the January 1, 2023 opening balance sheet. The highlights below are intended to illustrate the key impacts of IFRS 17 on the
comparative year. For more details, refer to Note 2 – Adoption of new accounting standards to the Consolidated financial statements and our
Investor presentation dated April 27, 2023, available on our website at www.intactfc.com.
KPI
Key highlights (IFRS 17)
Q1-2022 Q2-2022
Q3-2022 Q4-2022
FY-2022
Underwriting
income1
Operating net
investment
result1
NOIPS1
EPS
BVPS1
• Impact from changes in recognition patterns and
methodologies are largely due to timing differences
from deferred acquisition costs (depending on
premium growth), onerous contracts (depending on
future profitability) and discounting (depending on
interest rates). Over time, we do not expect timing
differences to be significant.
• Overall increase to underwriting income, driven by
the reclassification of the net unwind of discount on
claims liabilities (with a similar decrease to operating
net investment result and no overall impact to
NOIPS).
• Overall decrease to operating net investment result,
driven by the reclassification of the net unwind of
discount on claims liabilities (with a similar increase
to underwriting income and no overall impact to
NOIPS).
• The most significant presentation change within
operating income was the reclassification of the
net unwind of discount on claims liabilities from
underwriting income to operating net investment
result (with no overall impact to NOIPS).
• Overall NOIPS impact is mainly driven by the
underwriting factors described above, including the
change in discount rate methodology2 and risk
adjustment3, the deferral of acquisition costs as well
as the recognition of onerous contracts.
• Other driving factors, other than the underwriting
factors above, are an offsetting increase in taxes as
well other corporate expenses reclassifications.
• Overall impact to net income is driven by the NOIPS
impact described above, as well as a similar impact
within exited
rate
(change
methodology2 and risk adjustment3 as well as
reclassification of the net unwind of discount on
claims liabilities).
in discount
lines
• Upon transition on January 1, 2022, BVPS has
slightly increased mainly due to the deferral of
allocated acquisition costs that were previously
expensed as incurred.
• On December 31, 2022, BVPS has slightly increased
mainly due to the deferral of allocated acquisition
costs and a decrease to our net claims liabilities (as
described above), partly offset by the recognition of
onerous contracts.
+$52
million
+$47
million
+$20
million
$(59)
million
+$60
million
+$83
million
+$88
million
+$90
million
+$117
million
+$378
million
$(83)
million
$(88)
million
$(90)
million
$(117)
million
$(378)
million
+$0.23
+$0.16
+$0.08
$(0.43)
+$0.04
+$0.23
+$0.29
+$0.03
$(0.38)
+$0.17
$2.58
(+3%)
$2.88
(+4%)
$2.92
(+4%)
$2.53
(+3%)
$2.53
(+3%)
1 See Section 31 – Non-GAAP and other financial measures for more details.
2 Under IFRS 17, our claims liabilities are discounted using a rate based on a reference portfolio of assets that reflects the characteristics and duration of the
claims liabilities (as opposed to the estimated market yield of the underlying assets backing the claims liability).
3 Risk adjustment replaces the previous concept of risk margin, and no longer accounts for the investment interest rate risk.
108 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Discount build and net unwind of discount on claims liabilities are time value concepts that offset to zero over the lifetime of a claim.
Key highlights (IFRS 17) - Combined ratios by segment and line of business
IFRS 4
(previous
standard)
KPI
impact
The favourable discount build as
well as the unfavourable net unwind
of discount on claims liabilities
were both
the
combined ratio of each
line of
business/segment, largely offsetting
each other.
included within
IFRS 17
(new
standard)
income.
However,
The favourable discount build remains within
underwriting
the
unfavourable net unwind of discount on
claims liabilities is now reported outside of
underwriting income, within our operating net
investment result. Operating net
investment
income remains unchanged.
No overall NOIPS impact from the presentation change explained above. Our consolidated combined ratio has
improved, with an offset in operating net investment result. This change in presentation did not impact the
underlying fundamentals or how we manage our lines of business.
Given the changes described above, we now present our segments and lines of business on an
undiscounted basis (including risk adjustment) to maintain comparability over time (throughout
Sections 5 to 7). We also provided discounted combined ratios, as presented in Table 12.
IFRS 17 brought other methodology changes to the calculation of the discount rates. Given that we were
already discounting our reserves, the overall impact of these changes is limited.
Insight
The new method to calculate the changes in discount rates and other financial assumptions (referred to as
MYA or market yield adjustment in the MD&A), now captures less of the movements in rate changes
throughout the year. The new method could allow for more volatility in operating results, in years where are
significant changes in discount rates. This was the case in the 2022 transition year, and as such we have
adjusted the discount build in the transition year (see Table 53 in Section 31 – Non-GAAP and other
financial measures for more details on this adjustment).
Overall – New standards
• As at December 31, 2023, we closed our first year under IFRS 17 – Insurance Contracts and IFRS 9 – Financial
instruments. 2022 comparatives were restated for IFRS 17 only.
•
The new standards have brought limited changes to our overall MD&A, as they do not impact how we manage and
measure our performance. However, it resulted in significant changes to financial statement presentation and disclosure.
Refer to Note 2 - Adoption of new accounting standards to the Consolidated financial statements for more details.
• Overall, these standards have had 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).
INTACT FINANCIAL CORPORATION 109
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Reference to our Consolidated financial statements for the year ended December 31, 2023
Adoption of new
accounting standards
Material accounting
judgments, estimates and
assumptions
Related-party
transactions
Standards issued but not
yet effective
Note 2
Note 4
Note 34
Note 37
32.2 Material 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, 2023
Global economic environment
Business combinations and disposals
Note 4.2
Note 5.3
Impairment of financial assets
Measurement of income taxes
Insurance and reinsurance contracts
Note 11.3
Valuation of defined benefit obligation
Note 24.1
Note 28.6
Note 31.8
Impairment of goodwill and intangible assets
Note 14.2
32.3 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.
Refer to Note 34 – Related-party transactions of the Consolidated financial statements for more details.
32.4 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, 2023
Summary of material accounting
policies
Derivative financial instruments
Fair value measurement
Note 3
Note 8
Note 9
110 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
32.5 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, 2023. 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.
32.6
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, 2023.
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.
In the context of the adoption of IFRS 17 and IFRS 9 as at January 1, 2023, management has updated its ICFR to reflect the
implementation of new IT systems and the design of new processes and internal controls. No other significant changes were made to
our ongoing ICFR during the twelve-month period ended December 31, 2023 that have materially affected, or are reasonably likely to
materially affect, the Company’s ICFR.
32.7 Relative performance update
Industry participants are reporting their results for the first time under IFRS 17 in 2023. We have seen variability in the information
reported on a year-to-date basis, with some peers yet to report comprehensive results. As the industry continues to adapt their filing
for this new reporting standard, our relative performance update will be provided in 2024, which will allow for a better yearly comparison
with our peers.
INTACT FINANCIAL CORPORATION 111
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 33 - Shareholder information
33.1 Authorized share capital and outstanding share data
Our authorized share capital consists of an unlimited number of common shares and Class A shares.
Table 60 – Outstanding share data (number of shares and amount)
As of February 13, 2024
Common shares
Preferred shares - Class A Shares
Series 1
Series 3
Series 5
Series 6
Series 7
Series 9
Series 11
Other equity
LRCN Series 1 Notes
Number of shares
Amount (in millions)
178,320,868
8,099
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
6,000,000
n/a
244
245
147
147
245
147
147
297
Refer to our Annual Information Form for more detailed information on the rights of shareholders and to Note 20 – Share Capital to
the Consolidated financial statements for additional information.
33.2 Distribution on common shares, preferred shares and other equity instruments
Table 61 – Dividends declared per share
Common shares
Preferred shares – Class A
Series 1
Series 3
Series 5
Series 6
Series 7
Series 9
Series 11
Q1-2024
1.21
0.3025625
0.2160625
0.325
0.33125
0.37575
0.3375
0.328125
Q4-2023
1.10
0.3025625
0.2160625
0.325
0.33125
0.37575
0.3375
0.328125
Q4-2022
1.00
0.21225
0.2160625
0.325
0.33125
0.30625
0.3375
0.328125
On February 13, 2024, the Board of Directors approved the quarterly dividend for Q1-2024.
On March 7, 2023, we issued the LRCN Series 1 Notes. Holders are entitled to receive semi-annual payments at a rate of 7.338% per
annum until June 30, 2028. Distributions for 2023 were made on June 30, 2023 and December 29, 2023.
33.3 Expected release dates of our financial results and earnings conference calls
Results release
Q1-2024
May 7, 2024
Q2-2024
Q3-2024
Q4-2024
July 30, 2024
November 5, 2024
February 11, 2025
Earnings call
May 8, 2024
July 31, 2024
November 6, 2024
February 12, 2025
112 INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 34 - Selected annual and quarterly information
34.1 Selected annual information
Table 62 – Selected annual information
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
Preferred shares - Class A
IFRS 17 basis
2023
22,370
27,516
1,331
1,316
6.99
4.40
2022
21,005
27,455
2,450
2,454
13.63
4.00
IFRS 4 basis
2021
17,283
17,635
2,088
2,067
12.40
3.40
Series 1
Series 3
Series 4 (floating rate)
Series 5
Series 6
Series 7
Series 9
Series 11
0.85
0.84
0.52
1.30
1.33
1.23
1.35
-
36,680
66,349
35,287
20,749
15,674
1 Under IFRS 17, this measure is aligned with our Consolidated financial statements, and includes Insurance revenue, Net investment income and Other income. See Note
32.2 - Segment operating performance of the Consolidation financial statements for more details.
2 From the Consolidated financial statements, this includes Financial liabilities by contractual maturity (in Note 10.5 b)) and Insurance contracts liabilities (in Note 10.5 c)).
1.21
0.86
-
1.30
1.33
1.36
1.35
1.31
37,083
55,979
35,643
20,697
16,190
0.85
0.86
-
1.30
1.33
1.23
1.35
1.04
35,601
53,741
34,320
20,721
15,843
Investments
Total assets
Total financial liabilities
Total non-current financial liabilities2
Equity attributable to shareholders
34.2 Selected quarterly information
Table 63 – Selected quarterly information
Operating DPW
Total revenues1
Segment operating revenues1
Operating net underwriting revenue
Current year CAT losses
(Favourable) PYD
Underwriting income (loss)
Operating combined ratio (discounted)
Operating net investment result
Distribution income
Net income
Net income attributable to
shareholders
Per share measures2
NOIPS
EPS
IFRS 17 basis
Q3
Q4
5,925
5,410
6,880
7,058
5,700
5,768
5,226
5,259
611
199
(189)
(272)
340
787
85.0% 93.5%
124
116
163
159
109
531
Q2
6,226
6,738
5,488
5,016
421
(238)
391
92.2%
110
137
260
2023
Q1
4,809
6,840
5,325
4,864
108
(259)
613
87.4%
69
105
377
Q4
5,125
6,851
5,470
5,041
171
(233)
485
90.4%
162
94
353
Q3
5,423
6,672
5,276
4,918
238
(215)
472
90.4%
142
113
375
Q2
5,801
6,772
5,150
4,802
245
(205)
576
88.0%
123
142
1,235
2022
Q1
4,656
7,160
5,101
4,761
182
(283)
531
88.9%
122
92
487
524
163
252
377
346
375
1,234
499
4.22
2.78
2.10
0.83
2.30
1.30
3.06
2.06
2.91
1.88
2.78
2.05
3.30
6.93
2.93
2.76
1 See Note 32.2 - Segment operating performance of the Consolidation financial statements for more details.
2 Basic and diluted (in dollars).
INTACT FINANCIAL CORPORATION 113
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
Section 35 - Glossary and definitions
35.1 Glossary of abbreviations
AEPS
AFS
AMF
AOCI
AROE
bps
BVPS
CAD
CAGR
CAL
CAN
CAT
CL
DB
DBRS
DC
DPW
Description
Adjusted EPS
Available for sale
Autorité des marchés financiers
Accumulated OCI
Adjusted ROE
Basis points
Book value per share
Canadian Dollar
Compound annual growth rate
Company action level
Canada
Catastrophe
Commercial lines
Defined benefit
Dominion Bond Rating Services
Defined contribution
Direct premiums written
Moody’s
Description
Moody’s Investor Service Inc.
MGA
MYA
NCI
NCIB
NAIC
NOI
NOIPS
OCI
OROE
OSFI
P&C
PA
P&L
PL
PML
PP
Managing general agent
Market yield adjustment
Non-controlling interests
Normal course issuer bid
National Association of Insurance Commissioners
Net operating income
NOI per share
Other comprehensive income
Operating ROE
Office of the Superintendent of Financial Institutions
Property & Casualty
Personal auto
Profit & loss
Personal lines
Probable maximum loss
Personal property
EBITDA
Earnings before interest, tax and amortization PRA
Prudential Regulatory Authority
Earnings per share to common shareholders PTOI
Pre-tax operating income
Environmental, Social and Governance
Financial Conduct Authority
Financial Statements
Fitch Ratings Inc.
FVTOCI
Fair value through other comprehensive
income
FVTPL
Fair value through profit and loss
GBP (£)
British pound sterling, UK’s official currency
International Financial Reporting Standards
Internal rate of return
Key performance indicator
Limited Recourse Capital Notes
Minimum capital test (Canada)
EPS
ESG
FCA
F/S
Fitch
IFRS
IRR
KPI
LRCN
MCT
MD&A
114 INTACT FINANCIAL CORPORATION
PYD
RBC
ROE
RSA
SCR
SL
SME
S&P
TSX
UK
UK&I
US
Prior year claims development
Risk-based capital (US)
Return on equity
RSA Insurance Group Limited
Solvency Capital Requirement (Europe)
Specialty lines
Small and medium-sized enterprise
Standard & Poor’s
Toronto Stock Exchange
United Kingdom
United Kingdom and International
United States
Management’s Discussion and Analysis
USD (US$) US Dollar
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
35.2 KPI definitions
Our most relevant key performance indicators are defined in the table below.
Underwriting
performance
Claims ratio*
Operating net claims* / Operating net underwriting revenue*
Expense ratio*
Operating net underwriting expenses* / Operating net underwriting revenue*
Combined ratio*
Claims ratio* + Expense ratio*
Underlying current year
loss ratio*
Operating net claims excluding current year CAT losses and PYD* / Operating
net underwriting revenue*
Claims ratio
CAT loss ratio*
Net current year CAT losses* / Operating net underwriting revenue*
PYD ratio*
PYD* / Operating net underwriting revenue*
Commissions ratio*
Commissions* / Operating net underwriting revenue*
Expense ratio
General expenses ratio*
General expenses* / Operating net underwriting revenue*
Premium taxes ratio*
Premium taxes* / Operating net underwriting revenue*
Consolidated
performance
NOIPS (in dollars)*
NOI attributable to common shareholders* / WANSO1
OROE*
NOI attributable to common shareholders* /
Adjusted average common shareholders’ equity (excluding AOCI)*
AEPS (in dollars)*
Adjusted net income attributable to common shareholders* / WANSO1
AROE*
Adjusted net income attributable to common shareholders* /
Adjusted average common shareholders’ equity*
EPS (in dollars)
Net income attributable to common shareholders / WANSO1
ROE*
Net income attributable to common shareholders /
Adjusted average common shareholders’ equity*
Financial
strength
BVPS (in dollars)
BVPS (excluding AOCI)
Adjusted debt-to-total
capital ratio*
Total leverage ratio
Common shareholders' equity /
Number of common shares outstanding at the same date
Common shareholders' equity (excluding AOCI) /
Number of common shares outstanding at the same date
Debt outstanding (excluding hybrid debt)* / Adjusted total capital
Debt outstanding, preferred shares and other equity (including NCI) / Adjusted
total capital
1 Weighted-average number of common shares outstanding on a daily basis during the period.
* See Section 31 – Non-GAAP and other financial measures for more details.
INTACT FINANCIAL CORPORATION 115
INTACT FINANCIAL CORPORATION
Management’s Discussion and Analysis for the year ended December 31, 2023
(in millions of Canadian dollars, except as otherwise noted)
35.3 Definitions of key terms used in our MD&A
The list below presents key terms that are used in the MD&A. These definitions are in line with how management analyzes
performance and may not be comparable to similar measures used by other companies in our industry. For other insurance-related
terms and definitions of our MD&A, a glossary is available in the “Investors” section of our web site at www.intactfc.com.
Net current year
catastrophe (CAT)
losses
Catastrophe loss
thresholds
Discounted and
Undiscounted results
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 (on an undiscounted
basis). Reported CAT losses can either be weather-related or not weather-related.
Our CAT thresholds are as follows by segment: P&C Canada: $10 million, P&C UK&I: £7.5 million and
P&C US: US$5 million. For multi-jurisdiction events, IFC aggregate threshold: $15 million (combined
impact across all segments of $15 million or more).
Discounted results include the impact of the discount build on claims liabilities. Claims liabilities are
discounted to reflect the time value of money using yield curves based on risk-free rates adjusted for an
illiquidity premium.
Undiscounted results exclude the impact of the discount build. This basis is line with how we manage
our business.
Combined ratio
Represents the sum of our claims ratio and expense ratio.
A combined ratio below 100% indicates a profitable underwriting result. A combined ratio over 100%
indicates an unprofitable underwriting result.
Growth in constant
currency
Growth that excludes 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.
Frequency (of claims)
Average number of claims reported in a specific period.
Large loss
A single claim, which is considered significant but that is smaller than the CAT threshold.
Organic growth
Excludes the impact of exited lines and growth attributable to acquisitions.
Prior year claims
development (PYD)
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.
Severity (of claims)
Average cost of a claim calculated by dividing the total cost of claims by the total number of claims.
Underlying performance
(underwriting)
Represents our current accident year performance, excluding the impact of catastrophe losses and prior
year claims development.
Written insured risks
Also referred to as Units. It represents the number of vehicles in personal automobile insurance and the
number of premises in personal property insurance written for a specific period.
116 INTACT FINANCIAL CORPORATION
Red settlement
+
Intact Financial Corporation
Consolidated financial statements
For the years ended December 31, 2023 and 2022
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 Group 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 13, 2024
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 “Company”], which comprise the consolidated balance sheets as at December 31, 2023 and 2022, and
January 1, 2022, and the consolidated statements of income, consolidated statements of comprehensive income,
consolidated statements of changes in equity and consolidated statements of cash flows for the years ended
December 31, 2023 and 2022, and notes to the consolidated financial statements, including material accounting
policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at December 31, 2023 and 2022, and January 1, 2022, and its
consolidated financial performance and its consolidated cash flows for the years ended December 31, 2023 and
2022, 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 Company 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 the liability for incurred claims
The Company describes its material accounting judgments, estimates and assumptions in relation to the valuation
of insurance contract liabilities, which include the liability for incurred claims, in note 4 and note 11 to the
consolidated financial statements. As at December 31, 2023, the Company recognized insurance contract liabilities
amounting to $30.4 billion, of which the liability for incurred claims was $21.7 billion and represented 55% of total
liabilities.
– 2 –
The principal consideration for our conclusion that the liability for incurred claims is a key audit matter is that its
determination involves the application of models, methodologies, and assumptions that require significant auditor
attention. The main assumption underlying these estimates is that the Company’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 the liability for
incurred claims have a high degree of estimation uncertainty and may materially change in future periods.
Our audit procedures related to the determination of the liability for incurred claims included the following, among
other procedures:
• Obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls
related to the claims handling portion of the liability for incurred claims processes, including the integrity of
data flows through the administration systems for the majority of the Company’s business in Canada and the
United States;
• Obtained an understanding of the Company’s actuarial methodologies and assessed whether they were
•
•
•
•
determined in accordance with IFRS 17 - Insurance Contracts;
Evaluated the objectivity, independence and expertise of the actuarial valuator appointed by management;
Performed an independent valuation of the liability for incurred claims, with the support of our actuarial
specialists, for a sample of lines of business that reflected our expectations based on the Company’s historical
experience, current trends, inflation, 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;
Performed data integrity testing of incurred claims, paid claims, and earned premiums used in the valuation
of liability for incurred claims; and
Assessed the adequacy of the disclosures pertaining to the liability for incurred claims provided in note 11 to
the consolidated financial statements.
IFRS 17 - Insurance contracts adoption
IFRS 17 – Insurance Contracts [“IFRS 17”], became effective on January 1, 2023. The Company applied IFRS 17
retrospectively as at January 1, 2022, and restated its comparative information. As a result, the Company
recognized an increase in its equity position of $420 million on its consolidated balance sheet. Note 2 and note 3
to the consolidated financial statements provide quantitative and qualitative information on the impact of the new
standard and accounting policy choices made by the Company.
The adoption of IFRS 17 is considered a key audit matter because the standard establishes new principles for the
recognition, measurement, presentation, and disclosure of insurance contracts that require the Company to make
judgments and estimates to determine the impact at transition. Significant audit effort was used to audit the
appropriateness of the Company’s selected accounting policies, to evaluate their application and impact on the
opening retained earnings, including the testing of data. In addition, valuation and actuarial specialists were
involved in the audit, specifically as it related to significant adjustments and key areas of judgement, including
deferral of insurance acquisition cash flows, onerous contracts, discount rate and risk adjustment methodology
and claims and ceded claims acquired in business combinations.
A member firm of Ernst & Young Global Limited
– 3 –
We performed the following procedures related to the adoption of IFRS 17, among other procedures:
•
•
•
•
•
•
Evaluated the Company’s judgments in selecting various accounting treatments and choices at transition
against the requirements of IFRS 17;
Tested on a sample basis the completeness and accuracy of the data used by the Company in determining
the impact of the adoption of IFRS 17 on the consolidated financial statements, by reconciling it to previously
audited information;
Reviewed the Company’s methodology and models to determine discount yield curves, risk adjustment and
the identification of onerous contracts and assessed whether it was in accordance with the requirements of
IFRS 17;
Assessed the reasonability of the basis used by the Company to identify and allocate cash flows related to
the acquisition of insurance contracts to groups of insurance contracts and whether the allocation was done
on a systematic basis, by testing on a sample basis the financial and non-financial data used through agreeing
the inputs to supporting evidence and recalculated the cash flows being deferred;
Assessed the reasonability of the basis used to identify the direct and ceded claims acquired in business
combinations to be reclassified as liability or asset for remaining coverage, by testing the data used and
reconciling it to underlying fulfillment and paid cash flows; and
Evaluated the adequacy of the disclosures provided in notes 2 and 3 to the consolidated financial statements.
Accounting for business combination - Acquisition of Direct Line Insurance Group plc’s brokered commercial
lines operations
The Company describes its material accounting judgments, estimates and assumptions in relation to accounting
for business combinations in note 4 and note 5 to the consolidated financial statements. On October 26, 2023, the
Company acquired Direct Line Insurance Group plc’s [“DLG”] brokered commercial lines operations. The
acquisition involved a business transfer agreement related to new business, renewal rights, data, brands,
employees, contractors, third party contracts and premises for which the operational transfer is expected to occur
in 2024, and a quota share agreement related to premiums written from October 1, 2023 until the operational
transfer noted above is finalized. Our key audit matter is in relation to the business transfer agreement, which was
accounted for as a business combination.
Auditing this business combination was complex due to the subjective nature of estimating the fair value of the
intangible assets acquired. In addition, there was management judgement in determining that the business transfer
agreement constituted a business combination and that the Company obtained control over the related net assets
at the date of the acquisition.
Our audit procedures related to the preliminary purchase price allocation included the following, amongst other
procedures:
•
Inspected the business transfer agreement to obtain an understanding of the key terms and conditions, and
to identify and assess the relevant accounting considerations;
• With the assistance of valuation specialists, we:
•
•
Assessed the appropriateness of the valuation methodology applied to determine the fair value of the
intangible assets.
Assessed the reliability of information and data used in the valuation, including the reasonableness of
cash flow projections by comparing to source data, industry benchmarking, and similar valuations.
A member firm of Ernst & Young Global Limited
– 4 –
•
Assessed the reasonableness of the key assumptions used in the valuation. These assumptions
included broker attrition rates, royalty rate, useful economic lives, and discount rate. The assessment
was based on historical experience, market comparable data or data derived from similar transactions,
and sensitivity analyses.
•
Evaluated the adequacy of the disclosures pertaining to the acquisition provided in note 5 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.
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 Company’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 Company or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
A member firm of Ernst & Young Global Limited
– 5 –
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
Company’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 Company’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 Company to cease to continue as a going concern;
Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation; and
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Company’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.
A member firm of Ernst & Young Global Limited
– 6 –
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Doru Pantea.
Toronto, Canada
February 13, 2024
A member firm of Ernst & Young Global Limited
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INTACT FINANCIAL CORPORATION
Consolidated financial statements
For the years ended December 31, 2023 and 2022
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 – Adoption of new accounting standards .................................................................................................................................. 9
Note 3 – Summary of material accounting policies ............................................................................................................................. 13
Note 4 – Material accounting judgments, estimates and assumptions ............................................................................................... 37
Note 5 – Business combinations and disposals .................................................................................................................................. 38
Note 6 – Investments .......................................................................................................................................................................... 42
Note 7 – Financial liabilities related to investments ............................................................................................................................ 44
Note 8 – Derivative financial instruments............................................................................................................................................ 45
Note 9 – Fair value measurement ...................................................................................................................................................... 48
Note 10 – Financial risk ...................................................................................................................................................................... 49
Note 11 – Insurance and reinsurance contracts ................................................................................................................................. 59
Note 12 – Insurance risk ..................................................................................................................................................................... 68
Note 13 – Reinsurance ....................................................................................................................................................................... 71
Note 14 – Goodwill and intangible assets ........................................................................................................................................... 73
Note 15 – Investments in associates and joint ventures ..................................................................................................................... 75
Note 16 – Property and equipment ..................................................................................................................................................... 75
Note 17 – Other assets and other liabilities ........................................................................................................................................ 75
Note 18 – Assets held for sale ............................................................................................................................................................ 76
Note 19 – Debt outstanding ................................................................................................................................................................ 77
Note 20 – Share capital ...................................................................................................................................................................... 80
Note 21 – Non-controlling interests .................................................................................................................................................... 84
Note 22 – Accumulated other comprehensive income (loss) .............................................................................................................. 85
Note 23 – Capital management .......................................................................................................................................................... 85
Note 24 – Net investment return and net insurance financial result .................................................................................................... 86
Note 25 – Other net gains (losses) ..................................................................................................................................................... 88
Note 26 – Expense by nature ............................................................................................................................................................. 89
Note 27 – Acquisition, integration and restructuring costs .................................................................................................................. 90
Note 28 – Income taxes ...................................................................................................................................................................... 90
Note 29 – Earnings per share ............................................................................................................................................................. 94
Note 30 – Share-based payments ...................................................................................................................................................... 94
Note 31 – Employee future benefits ................................................................................................................................................... 96
Note 32 – Segment information ........................................................................................................................................................ 106
Note 33 – Additional information on the Consolidated statements of cash flows .............................................................................. 110
Note 34 – Related-party transactions ............................................................................................................................................... 111
Note 35 – Commitments and contingencies ..................................................................................................................................... 112
Note 36 – Disclosures on rate regulation .......................................................................................................................................... 113
Note 37 – Standards issued but not yet effective ............................................................................................................................. 113
2
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated balance sheets
(in millions of Canadian dollars, except as otherwise noted)
As at
Assets
Investments
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Total investments
Reinsurance contract assets
Income taxes receivable
Deferred tax assets
Investments in associates and joint ventures
Property and equipment
Intangible assets
Goodwill
Other assets
Assets held for sale
Total assets
Liabilities
Insurance contract liabilities
Financial liabilities related to investments
Income taxes payable
Deferred tax liabilities
Debt outstanding
Other liabilities
Total liabilities
Equity
Common shares
Preferred shares and other equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Equity attributable to shareholders
Equity attributable to non-controlling interests
Note
December 31,
2023
December 31,
2022
(Restated)1
January 1,
2022
(Restated)1
6
11
28
15
16
14
14
17
18
11
7
28
19
17
20
21
$
$
$
$
$
1,171 $
1,010 $
28,436
1,384
4,668
480
944
37,083
5,217
57
811
944
799
5,047
4,085
1,936
-
27,095
1,421
4,598
476
1,001
35,601
5,004
254
722
845
778
4,700
3,350
2,487
-
2,276
25,307
1,847
5,686
634
930
36,680
4,975
195
525
760
774
4,636
3,066
2,952
842
55,979 $
53,741 $
55,405
30,353 $
135
205
726
5,081
3,004
29,130 $
189
28
805
4,522
2,939
39,504 $
37,613 $
8,099 $
1,619
7,542 $
1,322
9,718
290
6,503
(321)
16,190
285
8,864
269
7,801
(1,091)
15,843
285
28,946
265
128
771
5,229
2,863
38,202
7,576
1,175
8,751
211
6,602
530
16,094
1,109
17,203
55,405
Total equity
$
16,475 $
16,128 $
Total liabilities and equity
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
55,979 $
$
53,741 $
See accompanying notes to the Consolidated financial statements.
On behalf of the Board:
Charles Brindamour
Director
Jane E. Kinney
Director
INTACT FINANCIAL CORPORATION 3
INTACT FINANCIAL CORPORATION
Consolidated statements of income
(in millions of Canadian dollars, except as otherwise noted)
Years ended December 31,
Insurance revenue
Insurance service expense
Insurance service result from insurance contracts
Expense from reinsurance contracts
Income from reinsurance contracts
Net expense from reinsurance contracts
Insurance service result
Net investment income
Net gains (losses) on investment portfolio
Net investment return
Insurance finance income (expense)
Reinsurance finance income (expense)
Net insurance financial result
Net investment return and net insurance financial result
Share of profit from investments in associates and joint ventures
Other net gains (losses)
Other income and expense
Other finance costs
Acquisition, integration and restructuring costs
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)
Note
$
11
11, 26
2023
2022
(Restated)1
25,507 $
(22,584)
25,914
(22,750)
11
11
24
24
24
24
15
25
26
27
28
21
29
29
2,923
(3,056)
2,442
(614)
2,309
1,346
249
1,595
(1,091)
197
(894)
701
96
50
(627)
(222)
(503)
1,804
(473)
$
1,331 $
$
$
1,316
15
1,331 $
176.2
6.99 $
4.40 $
3,164
(3,475)
2,913
(562)
2,602
931
(326)
605
546
(107)
439
1,044
103
477
(689)
(177)
(353)
3,007
(557)
2,450
2,454
(4)
2,450
175.6
13.63
4.00
Dividends paid per common share (in dollars)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
20
$
See accompanying notes to the Consolidated financial statements.
4
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Consolidated statements of comprehensive income
(in millions of Canadian dollars, except as otherwise noted)
Years ended December 31,
Net income
Items that may be reclassified subsequently to Net income
FVTOCI debt securities2:
Net changes in unrealized gains (losses)
Reclassification of net losses (gains)
Income tax benefit (expense)
Available-for-sale securities3:
Net changes in unrealized gains (losses)
Reclassification of net losses (gains)
Income tax benefit (expense)
Cash flow hedges:
Net changes in unrealized gains (losses)
Reclassification of net losses (gains)
Income tax benefit (expense)
Foreign currency gains (losses) on:
Translation of foreign operations
Reclassification of net losses (gains)
Net investment hedges
Income tax benefit (expense)
Other, net of tax
Note
2023
2022
(Restated)1
$
1,331 $
2,450
382
16
(83)
315
-
-
-
-
-
-
-
-
5
-
24
6
35
-
-
-
-
-
(1,893)
(295)
548
(1,640)
17
(23)
1
(5)
132
(15)
(113)
(10)
(6)
32
350
(1,619)
(1,526)
227
(1,299)
1
(1)
-
(1,299)
(949)
382 $
367
15
382 $
(350)
(57)
(407)
-
-
-
(407)
(2,026)
424
426
(2)
424
$
$
Items that will not be reclassified subsequently to Net income
Employee future benefits:
Actuarial gains (losses), net of other surplus remeasurement
Income tax benefit (expense)
31
FVTOCI equity securities2:
Net changes in unrealized gains (losses)
Income tax benefit (expense)
Other comprehensive income (loss)
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to:
Shareholders
Non-controlling interests
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Not applicable for the year ended December 31, 2022, as related to IFRS 9 – Financial instruments. Refer to Note 2 – Adoption of new accounting
standards.
3 Not applicable for the year ended December 31, 2023, as related to IAS 39 – Financial instruments: recognition and measurement. Refer to Note 2 –
Adoption of new accounting standards.
See accompanying notes to the Consolidated financial statements.
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
Note
Share
Capital
Contributed
surplus
Retained
earnings
AOCI
Equity
attributable
to non-
controlling
interests
Total
Equity
Balance as at December 31, 2022 (As reported) $
8,864 $
269 $
7,352 $
(1,085) $
285 $
15,685
Impact of the application of IFRS 17
-
-
449
(6)
Balance as at December 31, 2022 (Restated)1
8,864
269
7,801
(1,091)
Impact of the initial application of IFRS 9
2
-
-
(422)
420
Balance as at January 1, 2023
8,864
269
7,379
(671)
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Issuance of common shares
Issuance of preferred shares and other
equity
Dividends and other distributions:
Common shares
Preferred shares and other equity
Share-based payments
Non-controlling interests:
Dividends
20
20
-
-
-
557
297
-
-
-
-
-
-
-
-
-
-
-
21
-
1,316
(1,299)
17
-
-
(778)
(84)
(31)
-
-
350
350
-
-
-
-
-
-
-
285
-
285
15
-
15
-
-
-
-
-
443
16,128
(2)
16,126
1,331
(949)
382
557
297
(778)
(84)
(10)
(15)
(15)
Balance as at December 31, 2023
$
9,718 $
290 $
6,503 $
(321) $
285 $
16,475
Balance as at December 31, 2021 (As reported) $
8,751 $
211 $
6,183 $
529 $
1,109 $
16,783
Impact of the initial application of IFRS 17
2
Balance as at January 1, 2022 (Restated)1
Net income1
Other comprehensive income (loss)1
Total comprehensive income (loss)1
Issuance of preferred shares
Repurchase of common shares for
cancellation
Dividends declared on:
Common shares
Preferred shares
Share-based payments
Non-controlling interests:
Dividends
Redemption
Sales of business
Other
20
20
21
5
-
8,751
-
-
-
147
(36)
-
-
-
-
-
-
2
-
211
-
-
-
-
-
-
-
58
-
-
-
-
419
6,602
2,454
(407)
1
530
-
(1,621)
2,047
(1,621)
-
(114)
(702)
(60)
(32)
-
60
-
-
-
-
-
-
-
-
-
-
-
Balance as at December 31, 2022 (Restated)1 $
(1,091) $
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
7,801 $
8,864 $
269 $
-
420
1,109
17,203
(4)
2
(2)
-
-
-
-
-
(24)
(510)
(288)
-
2,450
(2,026)
424
147
(150)
(702)
(60)
26
(24)
(450)
(288)
2
285 $
16,128
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 tax 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
Proceeds from sales 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
Proceeds from issuance of debt, net
Repayment of debt
Borrowing on (repayment of) the credit facility and commercial paper, net
Proceeds from issuance of common shares, net
Proceeds from issuance of preferred shares and other equity, net
Repurchase of common shares for cancellation
Repurchase of common shares for share-based payments
Payment of dividends on common shares, preferred shares, and other equity
distributions
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
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
228
1,011
366
See accompanying notes to the Consolidated financial statements.
Note
2023
2022
(Restated)1
33
33
5
5
19
19
19
20
20
20
30
20
21
21
$
1,804 $
(153)
445
(250)
1,846
(869)
-
31,930
(32,482)
(126)
(458)
(2,005)
(90)
799
(198)
(32)
551
296
-
(128)
(862)
(15)
-
321
162
1,010
(1)
$
1,171 $
905
266
$
1,171 $
3,007
(408)
768
298
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
1,010
600
410
1,010
176
634
355
INTACT FINANCIAL CORPORATION 7
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Glossary of abbreviations
12mECL
ABS
AFS
AMF
AOCI
CAD
CALs
CAN
CDOR
CGU
CPI
DB
DKK (kr.)
DSU
ECL
EPS
ESOP
ESPP
EUR (€)
FVTOCI
FVTPL
GBP (£)
GDP
GMM
IAS
IASB
IFRS
JV
LRCN
LTECL
12-month expected credit loss
Asset-backed securities
Available-for-sale
Autorité des marchés financiers
Accumulated other comprehensive income
Canadian Dollar
Company action levels
Canada
Canadian Dollar Offered Rate
Cash generating unit
Consumer price index
Defined benefits
Danish krone, Denmark’s official currency
Deferred share unit
Expected credit losses
Earnings per share to common shareholders
Employee stock option plan
Employee share purchase plan
Euro, currency of the European Union
Fair value through other comprehensive income
Fair value through profit or loss
British pound sterling, UK’s official currency
Gross domestic product
General Measurement Model
International Accounting Standard
International Accounting Standards Board
International Financial Reporting Standards
Joint ventures
Limited recourse capital notes
Lifetime expected credit loss
LTIP
MBS
MCT
MD&A
NAV
NCI
NCIB
NOI
OCI
OSFI
PAA
P&C
PSU
PTOI
RBC
ROE
RPI
RSA
RSU
SAR
SCR
SOFR
SONIA
SPPI
TSX
UK
UK&I
US
USD
Long term incentive plan
Mortgage-backed securities
Minimum capital test (Canada)
Management’s Discussion and Analysis
Net assets value
Non-controlling interests
Normal course issuer bid
Net operating income
Other comprehensive income
Office of the Superintendent of Financial
Institutions
Premium Allocation Approach
Property and casualty
Performance stock units
Pre-tax operating income
Risk-based capital (US)
Return on equity
Retail price index
RSA Insurance Group Limited, a subsidiary
domiciled in the UK (parent of UK&I business)
Restricted stock units
Stock appreciation rights
Solvency Capital Requirement (Europe)
Secured Overnight Financing Rate
Sterling overnight index average
Solely payments of principal and interest
Toronto Stock Exchange
United Kingdom
United Kingdom and International
United States
US Dollar
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 32 – Segment information.
The registered office of the Company is 700 University Avenue, Suite 1500, Toronto, Ontario, Canada, M5G 0A1.
8
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 2 – Adoption of new accounting standards
The Company adopted IFRS 17 - Insurance Contracts (“IFRS 17”) in conjunction with IFRS 9 – Financial instruments (“IFRS 9”) on
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
allowed a temporary exemption to delay the implementation of IFRS 9 until IFRS 17 was adopted.
•
•
IFRS 17 was applied retrospectively as at January 1, 2022, as a result comparative information was restated. The Company
applied the modified retrospective approach for past business combinations, except for the most recent acquisition of RSA
on June 1, 2021; and
IFRS 9 was applied retrospectively and the Company elected to recognize any IFRS 9 measurement differences by adjusting
its Consolidated balance sheets on January 1, 2023, as a result comparative information was not restated.
Refer to Note 3 – Summary of material accounting policies for more details on IFRS 17 and IFRS 9.
2.1 IFRS 17 – Insurance Contracts
The nature and the effect of the changes in accounting policies can be summarized, as follows:
a) Changes to classification, recognition and measurement
The Company applies IFRS 17 to the same scope of contracts previously reported under IFRS 4, as a result IFRS 17 did not change
the classification of the Company’s insurance contracts. However, IFRS 17 establishes specific principles for the recognition and
measurement of insurance and reinsurance contracts.
IFRS 17 introduces the GMM for the recognition and measurement of insurance contracts, which requires measuring insurance
contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance
contracts. Entities also have the option to use a simplified measurement model (the “PAA”) for short-duration contracts. The Company
chose to apply the PAA model for all of its insurance and reinsurance contracts except in limited circumstances where the GMM
is required.
The accounting under the PAA is similar to IFRS 4, but differs in the following key areas:
• Deferral of acquisition costs – Under IFRS 17, insurance acquisition cash flows are costs directly attributable to selling or
underwriting a portfolio of insurance contracts. An entity may elect to capitalize and amortize these costs over the coverage
period of the related group. It is similar to IFRS 4’s deferred acquisition costs except that they also include a portion of
allocated indirect costs, as a result, the Company has capitalized additional costs under IFRS 17. The impact on Equity
attributable to shareholders on transition was mostly due to the deferral of additional allocated indirect costs.
• Onerous contracts – IFRS 17 requires the identification of groups of onerous contracts at a more granular level than the
liability adequacy test performed under IFRS 4. For onerous contracts, the loss component based on projected profitability is
recognized immediately in Net income, resulting in earlier recognition compared to IFRS 4. Onerous contracts did not have
a significant impact on transition to IFRS 17.
• Discount rate – Under IFRS 17, the liability for incurred claims is discounted at a rate 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. Under IFRS 4, claims liabilities were
discounted using a rate that reflected the estimated market yield of the underlying assets backing these claims liabilities at
the reporting date. The changes in discounting methodology did not have a significant impact on transition.
• Risk adjustment – Under IFRS 17, the liability for incurred claims includes an explicit risk adjustment for non-financial risk
(“risk adjustment”) which replaces the risk margin under IFRS 4. The IFRS 4 risk margin reflected the inherent uncertainty in
the net discounted claim liability estimates, whereas the IFRS 17 risk adjustment is the compensation required for bearing
the uncertainty that arises from non-financial risk. Similar to the risk margin, the risk adjustment includes the benefit of
diversification, therefore the two methodologies are fairly aligned. As a result, the changes in methodology did not have a
significant impact on transition.
INTACT FINANCIAL CORPORATION 9
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
In addition, IFRS 17 introduces changes in accounting for claims and ceded claims acquired in a business combination (“acquired
claims”) in the scope of IFRS 3 – Business combinations (“IFRS 3”). They are treated as new insurance contracts issued by the
Company at the date of their acquisition. Consequently, acquired direct claims are reclassified as a liability for remaining coverage
(acquired ceded claims are reclassified as an asset for remaining coverage) in the acquirer’s Consolidated balance sheets and the
GMM applies to these contracts as the settlement period is expected to be long tail.
When IFRS 17 is applied to acquired claims, a loss component may be recognized after the acquisition if the Company pays claims
later than initially anticipated, resulting in most of the Company’s loss component on transition to IFRS 17. There was no significant
impact to Net income when compared to the prior-year development recognized under IFRS 4. However, due to the change in
classification of acquired claims as remaining coverage under IFRS 17, there was a significant gross up in Insurance revenue and
Insurance service expense compared to IFRS 4.
b) Changes to presentation and disclosures
IFRS 17 introduces significant changes to the presentation and disclosure of insurance and reinsurance contracts in the Consolidated
financial statements.
Consolidated balance sheets
Presentation changes in the Consolidated balance sheets are introduced by IFRS 17. The previously reported line items: premiums
receivable, deferred acquisition costs, claims liabilities, unearned premiums, and other related assets and liabilities are presented
together by portfolio on a single line called Insurance contract liabilities or assets. The previously reported line items: reinsurance
assets, reinsurance receivables, deferred acquisition costs ceded, and other related assets and liabilities are presented together by
portfolio on a single line called Reinsurance contract assets or liabilities.
Presentation is driven by portfolios which are composed of groups of contracts covering similar risks and which are managed together.
Portfolios of insurance and reinsurance contracts are presented separately between:
• Portfolios of insurance contracts that are assets;
• Portfolios of reinsurance contracts that are assets;
• Portfolios of insurance contracts that are liabilities; and
• Portfolios of reinsurance contracts that are liabilities.
Portfolios were established at initial recognition in accordance with IFRS 17. Portfolios and groups may change prospectively if there
are changes to how the Company manages its business.
Consolidated statements of income
Presentation changes in the Consolidated statements of income are introduced by IFRS 17 where direct insurance results are
presented separately from reinsurance results.
Underwriting performance is presented in the Consolidated statements of income under insurance service result and is composed of:
Insurance revenue which includes revenues related to direct business;
Insurance service expense which includes expenses related to direct business;
•
•
• Expense from reinsurance contracts which includes expenses related to ceded business; and
•
Income from reinsurance contracts which include revenues related to ceded business.
Insurance service results are presented without the impact of discount unwinding and changes in discount rates which are shown
separately under Net insurance financial result in Net income.
IFRS 17 resulted in presentation changes to IFRS 4’s underwriting expenses since expenses are classified either as insurance
acquisition cash flows and fulfilment cash flows within insurance service expense or as other expenses when they are not directly
attributable to insurance contracts. As a result, a portion of expenses classified as underwriting expenses under IFRS 4 is now
presented as other expenses under IFRS 17 in the line Other income and expense.
The following previously reported line items are no longer disclosed: direct premiums written, net earned premiums, net claims
incurred, and underwriting expenses.
10
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Disclosures
IFRS 17 introduces extensive disclosure requirements on the amounts recognized from insurance and reinsurance contracts and the
nature and extent of risks arising from these contracts.
IFRS 17 also suggests disclosing information at a more granular level than required under IFRS 4. Under IFRS 17, the Company
disaggregates information based on geographical area, which was the basis for most of the Company’s insurance disclosures under
IFRS 4. Management used judgment in determining the proper level of disclosures included in these first Consolidated
financial statements.
c)
Transition
On the transition date to IFRS 17, January 1, 2022, the Company identified, recognized and measured each group of insurance
contracts as if IFRS 17 had always applied unless it was impracticable and derecognized any existing balances that would not exist
had IFRS 17 always applied with any resulting net difference recognized in equity.
Upon transition to IFRS 17 on January 1, 2022, the Company’s Equity attributable to shareholders increased by $420 million (net of
a tax impact of $133 million) mainly due to the deferral of additional allocated indirect costs which were previously expensed as
incurred. The impact on the measurement of claims liabilities was limited due to the short tail nature of the Company’s business and
the fact that accounting practices under IFRS 4 were generally aligned with IFRS 17. IFRS 17 also resulted in presentation
reclassifications as described above.
The following tables summarize the impact of IFRS 17 on the Company’s Consolidated balance sheet on transition.
Table 2.1 – 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
Table 2.2 – Measurement impact of IFRS 17
As at January 1, 2022
Deferral of acquisition costs
Discount rate and risk adjustment methodology changes
Onerous contracts
Claims acquired in a business combination
Other
Tax
Full retrospective approach
Impact of IFRS 17
IFRS 4 Presentation Measurement
IFRS 17
66,349
(49,566)
(15,674)
(1,109)
(10,884)
10,884
-
-
(60)
480
(420)
-
55,405
(38,202)
(16,094)
(1,109)
IFRS 17
384
163
(27)
17
16
(133)
420
The Company has applied the full retrospective approach to each group of insurance contracts unless the application was
impracticable, in which case the Company applied the modified retrospective approach as described below.
Modified retrospective approach
Except for the most recent acquisition of RSA on June 1, 2021 which was accounted for under the full retrospective approach, the
Company has applied the modified retrospective approach for past business combinations since the application of the full retrospective
approach was determined to be impracticable. As a result:
• The Company has used reasonable and supportable information from its existing reporting systems, which resulted in the
closest outcome to the full retrospective approach; and
• For acquired claims from before the RSA acquisition, the Company has elected to measure acquired claims as liability for
incurred claims, even though the claims might have been incurred before the contracts were acquired.
INTACT FINANCIAL CORPORATION 11
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
2.2 IFRS 9 – Financial instruments
The Company adopted IFRS 9 retrospectively on January 1, 2023. The Company elected to not restate comparative information, as
a result it continues to be reported under IAS 39.
Upon transition to IFRS 9 on January 1, 2023, the Company’s Equity attributable to shareholders decreased by $2 million which
corresponds to the ECL calculated on its investment portfolio measured at amortized cost.
IFRS 9 also resulted in reclassifications from AOCI to Retained earnings as follows:
• Certain investments previously classified as AFS were reclassified as FVTPL. This will result in increased volatility in Net
income as unrealized gains and losses previously recognized in OCI are now being recognized in Net income. These
investments include:
o Common shares and certain preferred shares;
o Fixed-income instruments that failed the SPPI test (mostly indirect investments in non-rated private credit funds); and
o Certain fixed income instruments designated as FVTPL to back claims liabilities following the change in discount rate
methodology under IFRS 17; and
• The ECL calculated on instruments at fair value previously in AOCI was reclassified to Retained earnings (and in Net income
going forward).
The Company revised its preliminary estimate and reclassified $420 million (after-tax) of net unrealized losses from AOCI to Retained
earnings as at January 1, 2023.
The following table summarizes the classification and measurement impacts of IFRS 9 on transition. The adoption of IFRS 9 had no
significant impact on the Company’s other financial assets or liabilities. In addition, Investment property is in the scope of
IAS 40 – Investment property and therefore IFRS 9 does not apply to these types of investments.
Table 2.3 – 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 equivalents
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 were classified as FVTPL as they did not pass the SPPI test.
2 On transition to IFRS 9, the Company made an irrevocable election to designate these preferred shares as FVTOCI with fair value changes presented
directly and permanently in OCI.
3 Includes an ECL impact of $2 million.
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 has elected to apply.
2.3 Deferred tax related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued narrow scope amendments to IAS 12 – Income Taxes (“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 were effective for annual periods beginning on or after January 1, 2023. The Company applied them prospectively
with no impact on the Consolidated financial statements.
12
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 3 – Summary of material accounting policies
3.1 Basis of presentation .................................................................................................................................................................. 14
3.2 Basis of consolidation ................................................................................................................................................................ 14
3.3 Insurance and reinsurance contracts ........................................................................................................................................ 15
a) Classification and summary of measurement models ................................................................................................ 15
b) Separating components from insurance and reinsurance contracts ......................................................................... 15
c) Level of aggregation ....................................................................................................................................................... 16
d) Recognition ..................................................................................................................................................................... 16
e) Contract boundary .......................................................................................................................................................... 17
f) Measurement models ..................................................................................................................................................... 17
g) Claims acquired in a business combination in the scope of IFRS 3 – Business combinations .............................. 21
h) Modification and derecognition ..................................................................................................................................... 21
i) Insurance revenue .......................................................................................................................................................... 22
j) Insurance service expense ............................................................................................................................................ 22
k) Insurance finance income and expense ....................................................................................................................... 22
l) Net expense from reinsurance contracts ..................................................................................................................... 22
m) Other income and expense ............................................................................................................................................ 22
3.4 Financial instruments ................................................................................................................................................................. 23
a) Classification and measurement of financial assets and financial liabilities under IFRS 9 ..................................... 23
b) Classification and measurement of financial assets and financial liabilities under IAS 39 ..................................... 25
c) Fair value measurement ................................................................................................................................................. 26
d) Derivative financial instruments and hedging ............................................................................................................. 28
e) Derecognition of financial assets and financial liabilities ........................................................................................... 29
f) Offsetting of financial assets and financial liabilities .................................................................................................. 29
g) Revenue and expense recognition ................................................................................................................................ 29
h) Impairment of financial assets other than those classified or designated as FVTPL under IFRS 9 ....................... 30
i) Impairment of financial assets other than those classified or designated as FVTPL under IAS 39 ........................ 30
3.5 Business combinations .............................................................................................................................................................. 31
3.6 Goodwill and intangible assets .................................................................................................................................................. 32
a) Goodwill ........................................................................................................................................................................... 32
b) Intangible assets ............................................................................................................................................................. 32
3.7 Foreign currency translation ...................................................................................................................................................... 32
3.8 Investments in associates and joint ventures .......................................................................................................................... 33
3.9 Property and equipment ............................................................................................................................................................. 34
3.10 Investment property and rental income .................................................................................................................................. 34
3.11 Leases ........................................................................................................................................................................................ 34
3.12 Assets held for sale .................................................................................................................................................................. 34
3.13 Income taxes .............................................................................................................................................................................. 35
a) Income tax expense (benefit) ......................................................................................................................................... 35
b) Recognition and offsetting of current tax assets and liabilities ................................................................................. 35
3.14 Share-based payments ............................................................................................................................................................. 35
a) Long Term incentive plan .............................................................................................................................................. 35
b) Employee share purchase plan ..................................................................................................................................... 36
c) Deferred share unit plan ................................................................................................................................................. 36
d) Employee stock option plan .......................................................................................................................................... 36
3.15 Employee future benefits – pension ........................................................................................................................................ 37
3.16 Current vs non-current ............................................................................................................................................................. 37
INTACT FINANCIAL CORPORATION 13
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.1 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 13, 2024.
The material 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 new standards and amendments to existing standards
adopted on January 1, 2023, as described in Note 2 – Adoption of new accounting standards.
Comparative information was restated due to the adoption of IFRS 17. In addition, restated 2022 figures include certain
reclassifications that do not directly pertain to the adoption of IFRS 17 to align with the presentation adopted in the current year.
Therefore, comparative information was restated to ensure comparability. Refer to Note 2 – Adoption of new accounting standards
for more details.
The Company presents its Consolidated balance sheets broadly in order of liquidity.
3.2 Basis of consolidation
These Consolidated financial statements include the accounts of the Company and its subsidiaries. Table 3.1 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 3.1 – 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.
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 Other net gains (losses).
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.
Generally, between
20% to 50% of
voting rights
Equity method1
Note 3.8 for more details
Generally, an equal
percentage of
voting rights from
each party to the
joint arrangement
Equity method1
Note 3.8 for more details
1 Unless the investment is held by a venture capital organization, in which case the Company may elect to measure it at FVTPL.
14
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.3 Insurance and reinsurance contracts
The Company adopted IFRS 17 on January 1, 2023 and restated its comparative information. For the impact on the adoption of
IFRS 17, refer to Note 2 – Adoption of new accounting standards.
a) Classification and summary of measurement models
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. 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.
The Company issues insurance contracts in the normal course of business (direct business) and 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. The Company may acquire insurance and reinsurance contracts through a business combination or transfer of contracts.
All references to insurance and reinsurance contracts include contracts issued, held, and acquired by the Company, unless
otherwise stated.
The Company uses different measurement models depending on the type of contract. The Company chose to apply the simplified
measurement model (the PAA) for all of its insurance and reinsurance contracts except in limited circumstances where the GMM is
required as described in the following table. The GMM is the default model for the recognition and measurement of insurance
contracts; however, there is an option to use the PAA for contracts that have a coverage period of one year or less or if the resulting
liability for remaining coverage (insurance coverage to be provided after the reporting period) is not expected to materially differ from
its measurement under the GMM.
Table 3.2 – Summary of the Company’s types of contracts and measurement models
Type of contracts
All of the Company’s insurance and reinsurance contracts except for acquired claims and retroactive
reinsurance contracts.
Acquired claims including those from the RSA acquisition on June 1, 2021 and any future
acquisitions.
Retroactive reinsurance contracts to cover adverse development of existing claims mainly in the UK&I
and US.
Measurement model
PAA (refer to Table 3.4)
GMM (refer to Table 3.6)
GMM (refer to Table 3.6)
b) Separating components from insurance and reinsurance contracts
Insurance and reinsurance contracts are assessed to determine whether they contain components which must be accounted for under
an IFRS other than the insurance contract standard. The Company’s insurance and reinsurance contracts do not include
such components.
Also, the Company applies judgment when particular facts and circumstances require the separation of its insurance contracts into
distinct insurance components. The Company's judgment is based on interdependency between the different risks covered, whether
components lapse together and whether components can be priced and purchased separately.
A limited number of insurance contracts contain profit commission arrangements where the policyholder will always receive a minimum
guaranteed amount irrespective of the insured event occurring. The Company assessed the minimum guaranteed amount to be highly
interrelated with the insurance component; as a result, they are considered non-distinct investment components and are not accounted
for separately. Investment components are excluded from Insurance revenue and Insurance service expense with no impact on
Net income.
INTACT FINANCIAL CORPORATION 15
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
c)
Level of aggregation
Insurance and reinsurance contracts are aggregated 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 judgment in establishing its various portfolios, the drivers considered include the main geographic areas, lines of
businesses, distribution channels, and legal entities in which it operates. 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.
Portfolios of insurance contracts that are assets and those that are liabilities, and portfolios of reinsurance contracts that are assets
and those that are liabilities are presented separately in the Consolidated balance sheets.
Portfolios and groups may change prospectively if there are changes to how the Company manages its business.
d) Recognition
The Company initially recognizes groups of insurance contracts it issues from the earliest of the following:
• The beginning of the coverage period of the group of contracts;
• The date when the first payment from a policyholder in the group is due or when the first payment is received if there is no
due date; or
• The issue date when the group of insurance contracts is onerous.
The Company initially recognizes a group of reinsurance contracts held:
• From the beginning of the coverage period of the group unless the reinsurance contracts provide proportionate coverage, in
which case it is from the later of the beginning of the coverage period of the group, or the initial recognition of any underlying
contract; or
• The date the Company recognizes an onerous group of underlying insurance contracts if the Company entered into the
related reinsurance contract at or before that date.
Acquired direct claims and acquired ceded claims are treated as new insurance contracts issued and reinsurance contracts held at
the date of their acquisition.
Groups of contracts are established on initial recognition. The Company adds new contracts to the group when they individually meet
the criteria above. Composition of groups is not revised subsequently.
Any premiums received before the recognition of the corresponding group of insurance contracts are recognized as deferred revenues
in Other liabilities. When a group of contracts is recognized as per above the premiums received are reclassified to the liability for
remaining coverage.
16
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
e) Contract boundary
The measurement of groups of insurance and reinsurance contracts includes all the future cash flows within the boundary of
each contract.
Cash flows are within the boundary of a contract if they arise from substantive rights and obligations that exist during the reporting
period in which the entity can compel the policyholder to pay the premiums or has a substantive obligation to provide the policyholder
with services.
A substantive obligation or right ends when the entity has the practical ability to reassess risks and can set a price or level of benefits
that fully reflects those risks.
f) Measurement models
The carrying amount of a group of insurance and reinsurance contracts at the end of each reporting period is composed of
the following:
Table 3.3 – Basic components of insurance and reinsurance contracts
Component
Description
The obligation to provide coverage after the reporting period for insured events that have not
yet occurred.
Relates to
Future service
Liability for
remaining
coverage
Liability for
incurred claims
Asset for
remaining
coverage
Asset for
incurred claims
The obligation to investigate and pay valid claims for insured events that have already
occurred, including events that have occurred but for which claims have not been reported,
and other incurred insurance expenses.
The right to receive coverage from a reinsurer after the reporting period for reinsured events
that have not yet occurred.
Past service
Future service
The right to receive compensation for reinsured events that have already occurred, including
events that have occurred but for which reinsured claims have not been reported.
Past service
INTACT FINANCIAL CORPORATION 17
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Premium Allocation Approach
The Company applies the PAA when measuring the liability for remaining coverage as follows:
Table 3.4 – Summary of the PAA for the liability for remaining coverage
Topic
Overview
Contracts
applying this
model
Initial and
subsequent
measurement
Insurance
acquisition cash
flows
Description
The PAA is a simplified measurement model which may be applied to insurance contracts when:
• The coverage period is one year or less; or
• For contracts longer than one year if there is no material difference in the liability for remaining coverage
measured under both the PAA and the GMM.
The Company applies the PAA to all of its insurance and reinsurance contracts, except in limited circumstances
where the GMM is required (refer to Table 3.6).
The liability for remaining coverage includes:
• Premiums received;
• Minus insurance acquisition cash flows paid net of the amortization of the insurance acquisition cash
flows recognized (refer to j) Insurance service expense below);
• Minus amounts recognized as insurance revenue for the services provided, generally allocated based
on the passage of time which is usually 12 months (refer to i) Insurance revenue below);
• Any investment component paid or transferred to the liability for incurred claims; and
•
Loss component for onerous contracts.
Insurance acquisition cash flows are costs directly attributable to selling or underwriting a portfolio of insurance
contracts and are presented in the liability for remaining coverage. These cash flows include:
• Direct costs such as commissions and premium taxes; and
• An allocation of indirect costs such as salaries, rent and technology costs.
Onerous
contracts
Management used judgment in determining the drivers used to allocate indirect costs to groups of insurance
contracts.
The Company assumes that no contracts is in a portfolio are potentially onerous at initial recognition unless
facts and circumstances indicate otherwise.
Other elections
The Company has developed a methodology for identifying indicators of possible onerous contracts, which
includes internal management information on planning information, forecast information and historical
experience. In addition, the Company has developed models for measuring potential onerous contract losses
(refer to Onerous contracts below).
The Company has elected to:
• Not discount the liability for remaining coverage under the PAA; and
• Capitalize all insurance acquisition cash flows to the related group and amortize these costs over the
coverage period of the related group.
Reinsurance
contracts
Reinsurance contracts are measured on the same basis as insurance contracts, except:
• They are adapted to reflect the features of reinsurance contracts that differ from insurance contracts,
for example the generation of expenses or reduction in expenses rather than revenue;
• They include an allowance for non-performance risk by the reinsurer (which is presented in Net
expense from reinsurance contracts); and
• The risk adjustment represents the amount of risk being transferred to the reinsurer.
18
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
For contracts measured under the PAA, the Company measures the liability for incurred claims as follows:
Table 3.5 – Summary of the PAA for the liability for incurred claims
Topic
Description
Liability for
incurred claims
Generally, the liability for incurred claims is discounted to consider the time value money (refer to Discount
rate below). However, for contracts measured under the PAA only, the Company is not required to adjust future
cash flows for the time value of money and the effect of financial risk if those cash flows are expected to be
paid or received in one year or less from the date the claims are incurred. The Company has elected to discount
all of its liability for incurred claims.
The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims.
The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available
without undue cost or effort about the amount, timing and uncertainty of those future cash flow. They reflect
current estimates from the perspective of the Company and include an explicit risk adjustment (refer to Risk
adjustment below).
Liability for incurred claims 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.
Refer to Note 11.3 – Material accounting judgments, estimates and assumptions for more details.
Onerous contracts
A group of contracts is onerous at initial recognition if there is a net outflow of fulfilment cash flows. As a result, a liability for the net
outflow is recognized as a loss component within the liability for remaining coverage and a loss is recognized immediately in Net
income in Insurance service expense. The loss component is then amortized to Net income over the coverage period to offset incurred
claims in Insurance service expense. 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. Refer to Table 3.4 and Table 3.6 for more details.
At initial recognition, the loss recovery component is calculated by multiplying the initial loss recognized on the underlying insurance
contracts and the percentage of claims on the underlying insurance contracts the Company expects to recover from the group of
reinsurance contracts. The loss recovery component is included in the asset for remaining coverage and the recovery is recognized
immediately in Net income in Income from reinsurance contracts. The loss recovery is subsequently amortized in Income from
reinsurance contracts.
During the coverage period, if facts and circumstances indicate that a group of insurance contracts is potentially onerous, the Company
applies the same analysis it has performed for groups potentially onerous at initial recognition.
For more details on identifying onerous contracts under the PAA model, refer to Table 3.4.
Discount rate
The liability for incurred claims under the PAA and the GMM and the liability for remaining coverage under the GMM are discounted.
Estimates of future cash flows are discounted to reflect the time value of money and financial risk that considers 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. Refer to Note 11.3 – Material accounting
judgments, estimates and assumptions for more details.
Risk adjustment
The measurement of insurance contracts includes a risk adjustment for non-financial risk which is the compensation required for
bearing the uncertainty about the amount and timing of the cash flows of groups of insurance contracts. The risk adjustment includes
the benefit of diversification and excludes the impact of financial risks. Refer to Note 11.3 – Material accounting judgments,
estimates and assumptions for more details.
INTACT FINANCIAL CORPORATION 19
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
General Measurement Model
The Company applies the GMM when measuring the liability for remaining coverage as follows:
Table 3.6 – Summary of the GMM for the liability for remaining coverage
Topic
Overview
Contracts
applying this
model
Description
The GMM is the default model to measure insurance contracts using updated estimates and assumptions that
reflect the timing of cash flows and any uncertainty relating to insurance contracts.
The liability for remaining coverage includes:
• Fulfilment cash flows which are comprised of:
o Discounted estimates of future cash flows (refer to Discount rate above and Note 11.3 – Material
accounting judgments, estimates and assumptions for more details); and
o A risk adjustment (refer to Risk adjustment above) which is the compensation required for bearing
uncertainty; and
• Contractual service margin which is the unearned profit that is recognized as services are provided.
The Company applies the GMM to a limited number of contracts including:
• Acquired claims from the RSA acquisition and any future acquisitions (refer to Table 3.7 for more
details); and
• Retroactive reinsurance contracts to cover adverse development of existing claims mainly in the UK&I
and US segments.
Initial and
subsequent
measurement
At initial recognition, unless the group of contracts is onerous, the contractual service margin is measured at
an amount that results in no income nor expense arising from:
Initial recognition of fulfilment cash flows; and
•
• Any cash flows arising from the contracts in the group.
Subsequently, the contractual service margin is adjusted for:
• The effect of any new contracts;
•
Interest accreted at the discount rates at initial recognition (locked-in discount rate);
• Changes in fulfilment cash flows relating to future service, except to the extent that such:
o
Increases exceed the contractual service margin, in which case the excess is recognized as a loss
in Net income and a loss component is recognized; and
o Decreases are allocated to the loss component, reversing losses previously recognized in Net
income;
• The effect of any currency exchange differences; and
• Amounts recognized as insurance revenue for services provided, determined by allocating the
contractual service margin over the current and remaining service coverage period which is the
expected claims settlement pattern for acquired claims.
Changes in fulfilment cash flows related to current services are recognized immediately in Net income
which include:
• Changes in risk adjustment for expired risk; and
• Experience adjustments which are the difference between estimated premiums and claims and other
insurance service expense incurred in the period.
Onerous
contracts
Other elections
Reinsurance
contracts
Groups of contracts are assessed as onerous when fulfilment cash flows exceed the carrying amount of the
liability for remaining coverage (refer to Onerous contracts above). Refer to the Subsequent measurement
section of Table 3.7 for onerous contracts in the context of acquired claims.
Estimates made in previous interim periods are revised therefore cash flows are measured on a year-to-
date basis.
Reinsurance contracts are measured on the same basis as insurance contracts, except:
• They include an allowance for non-performance risk by the reinsurer (which is presented in Net
expense from reinsurance contracts);
• The risk adjustment represents the amount of risk being transferred to the reinsurer;
• Day 1 gains/losses are recognized initially as a contractual service margin and released to Net income
as the reinsurer renders services, except for day 1 losses related to events before initial
recognition; and
• Changes in fulfilment cash flows adjust the contractual service margin only to the extent that they relate
to changes in underlying fulfilment cash flows that have adjusted the underlying contractual service
margin. Any changes to the reinsurance contracts' fulfilment cash flows outside this limit are recognized
immediately in Net income.
For contracts measured under the GMM, the liability for incurred claims is measured similar to that under PAA. Refer to Table 3.5.
20
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
g) Claims acquired in a business combination in the scope of IFRS 3 – Business combinations
Table 3.7 – Summary of the claims acquired in a business combination
Topic
Overview
Contracts applying
this model
Initial recognition
(Acquisition date)
Subsequent
measurement
Description
Acquired claims are treated as new insurance contracts that had been issued by the Company at the date of
their acquisition. The Company is deemed to have received a premium in consideration to cover adverse
development and the settlement of future claims which is expected to be long tail, and as a result the GMM
must be applied.
The acquired direct claims are classified as a liability for remaining coverage (acquired ceded claims are
classified as an asset for remaining coverage) in the acquirer’s Consolidated balance sheets.
There is a gross presentation in Net income of Insurance service revenue representing the liability for remaining
coverage recognized over the claims settlement pattern and expenses representing the settlement of claims.
Acquired claims from the RSA acquisition on June 1, 2021 and any future acquisitions.
At initial recognition, the Company identifies the groups of contracts acquired based on the level of aggregation
requirements as if it entered into the contracts at the date of the acquisition.
For measurement purposes, the consideration received or paid for the contracts is treated as a proxy for the
premiums received and excludes any consideration for other assets and liabilities acquired in the same
transaction. This consideration is deemed to be the contracts’ fair value at the date of the acquisition.
The Company compares the fair value of acquired claims to its measurement of fulfilment cash flows related
to the acquired claims under IFRS 17. If the fair value exceeds the fulfilment cash flows, a contractual service
margin is established at initial recognition. If the fulfilment cash flows exceed the fair value, the difference is
treated as a loss component and adjusts the goodwill or gain on bargain purchase.
The Company measures these contracts following the GMM (refer to Table 3.6).
The liability for remaining coverage is released into Net income over the coverage period based on coverage
units provided during the period. Coverage units are based on the expected claims settlement pattern, as they
expire:
• The contractual service margin is released into Insurance revenue; and
• The loss component is released into Insurance service expense.
As claims are settled, they are recognized as Insurance service expense.
For more details regarding coverage units, refer to Note 11.3 – Material accounting judgments, estimates
and assumptions.
Since the expected settlement pattern is used to determine how insurance revenue will be recognized, any
unexpected changes in payments beyond the reporting date such as developments in fulfilment cash flows or
changes in timing, will be recognized within the contractual service margin or the loss component as follows:
• Unexpected increases will either erode any existing contractual service margin until exhausted and
establish a loss component for the excess or will increase any existing loss component; and
• Unexpected decreases will either erode any existing loss component until exhausted and establish a
contractual service margin for the excess or will increase any existing contractual service margin.
h) Modification and derecognition
The Company derecognizes insurance contracts when:
• The rights and obligations relating to the contract are extinguished; or
• The contract is modified such that it results in a change in the measurement model, substantially changes the contract
boundary, or requires the modified contract to be included in a different group.
In such cases, the Company derecognizes the initial contract and recognizes the modified contract as a new contract. When a
modification is not treated as a derecognition, the Company recognizes amounts paid or received for the modification as an adjustment
to the relevant liability for remaining coverage.
INTACT FINANCIAL CORPORATION 21
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
i)
Insurance revenue
Insurance revenue on direct business is allocated over the coverage period of the contract and includes:
• Premium receipts net of cancellations and promotional returns, and excluding sales taxes and any investment
components; and
• Other insurance revenue which 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.
j)
Insurance service expense
Insurance service expense includes fulfilment and acquisition cash flows which are costs directly attributable to insurance contracts
and are comprised of both direct costs and an allocation of indirect costs. It is composed of the following:
•
Incurred claims and other insurance service expense, which are fulfilment cash flows and include direct incurred claims and
non-acquisition costs directly related to fulfilling insurance contracts (excluding any investment component);
• Amortization of insurance acquisition cash flows (refer to Table 3.4 and Table 3.6 for more details); and
•
Losses and reversals on onerous contracts (refer to Onerous contracts above for more details).
The Company has elected to present changes in risk adjustment related to the non-financial portion in Insurance service result and
changes in the financial portion (discount unwinding and changes in discount rates) in Net insurance financial result.
k)
Insurance finance income and expense
Insurance finance income and expense comprise the change in the carrying amount of the group of insurance contracts arising from:
• The discount unwinding;
• Changes in discount rates;
• The effect of financial risk and changes in financial risk; and
• Net foreign currency gains (losses).
The Company has elected to record changes in discount rates in Net income in Net insurance financial result.
l)
Net expense from reinsurance contracts
Net expense from reinsurance contracts comprises of the amounts expected to be recovered from reinsurers (Income from
reinsurance contracts) and an allocation of the reinsurance premiums paid (Expense from reinsurance contracts).
The Company treats reinsurance cash flows that are contingent on claims of the underlying contracts as part of the amounts
recoverable from reinsurers and includes ceded commissions not contingent on claims as a reduction of the premiums paid
to reinsurers.
IFRS 17 requires management to use judgments, estimates and assumptions. Refer to Note 11.3 – Material accounting judgments,
estimates and assumptions for more details.
m) Other income and expense
The Company also has contracts other than insurance and reinsurance contracts which are recognized in Other income on an accrual
basis. They include commission revenues received from external insurance providers by consolidated brokers and revenues related
to supply chain operations.
Other expense includes expenses that are not directly attributable to insurance contracts, the amortization of acquired intangible
assets, and administrative expenses.
22
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.4 Financial instruments
The Company adopted IFRS 9 retrospectively on January 1, 2023. The Company elected to not restate comparative information. As
a result, it continues to be reported under IAS 39. Refer to Note 2 – Adoption of new accounting standards for more details.
a) Classification and measurement of financial assets and financial liabilities under IFRS 9
Debt instruments
The classification and measurement of debt instruments is dependent on the business model under which the Company manages its
investments as well as their cash flow characteristics (refer to SPPI assessment below). They are reclassified when and only when
the business model for managing those assets changes.
Table 3.8 – Classification of the Company’s debt instruments
Amortized cost
FVTOCI
FVTPL
Assets held for the collection of
contractual cash flows.
Cash flows represent solely
payments of principal and interest.
Assets held for the collection of
contractual cash flows and for the
sale of financial assets.
Cash flows represent solely
payments of principal and interest.
Assets that do not meet the criteria for amortized
cost nor FVTOCI are measured at FVTPL.
An irrevocable election can be made (on an
instrument-by-instrument basis) to designate assets
as FVTPL if doing so eliminates or significantly
reduces an accounting mismatch.
Business model assessment
The Company determines its investment business model by considering its insurance activities. In addition, judgment is used in
concluding which model aligns best with its core business objectives and practices. Factors that are used in business model decisions
include how insurance business generate benefits, significant risks facing the business on asset and liability fronts, how compensation
is determined for portfolio managers responsible for managing investments, as well as historical and projected turnover of the
investment portfolio to fund insurance business on a day-to-day basis. The Company’s business models fall into two categories, which
are indicative of the key strategies to generate returns:
• The Company’s primary business model is held-to-collect and sell which provides a desired flexibility to support the
Company’s insurance business i.e., contractual cash flows from financial assets are collected by holding such investments,
and these financial assets are sold when required to fund insurance contract liabilities.
• The Company also carries certain financial assets under the held-to-collect business model where the emphasis is to collect
contractual cash flows. Sales are incidental to this objective and are expected to be insignificant or infrequent.
The Company also specifically designates on an individual basis, a portion of investments as FVTPL to reduce accounting mismatch
in Net income. This designation is irrevocable.
SPPI 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 is classified and measured at FVTPL.
Equity instruments
There are two measurement categories under which an equity instrument could be classified: as FVTOCI or FVTPL.
Table 3.9 – Classification of the Company’s equity instruments
FVTOCI (without recycling)
FVTPL
Irrevocable election (on an instrument-by-instrument basis) on
the date of acquisition.
Designation is not permitted if the equity instrument is held
for trading.
Default classification for all equity instruments.
INTACT FINANCIAL CORPORATION 23
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Financial instruments
Table 3.10 – Classification of the Company’s most significant financial instruments under IFRS 9
Classification
FVTOCI
Financial
instruments Description
Debt securities
not backing
insurance
contracts
Investments intended to be held for an indefinite
period and which may be sold in response to liquidity
needs or changes in market conditions.
Preferred
shares
Most of the Company’s preferred shares portfolios as
they are held for the purpose of earning dividend
income, with the intent of holding them for the long-
term.
Designated
as FVTPL on
initial
recognition
Debt securities
backing
insurance
contracts
Classified as
FVTPL
Amortized
cost – Other
financial
assets
Amortized
cost - Other
financial
liabilities
Equity
instruments
Derivative
financial
instruments
Other
instruments
Cash and cash
equivalents
Loans and
receivables
Debt
outstanding
Securities sold
under
repurchase
agreements
A portion of the Company’s investments backing its
insurance contracts has been voluntarily designated
as FVTPL to eliminate the accounting mismatch
caused by fluctuations in fair values of underlying
insurance contracts 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 insurance
contracts.
All common share portfolios and certain preferred
shares which are classified as FVTPL.
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.
Investments in mutual and private funds.
Highly liquid investments held to meet short-term
requirements 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.
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
medium-term and subordinated notes, term loans
and amount drawn under a credit facility.
The sale of securities together with an agreement to
repurchase them in the short-term, at a set price
and date.
Initial and subsequent measurement
Initially measured at fair value 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) on investment portfolio when
realized or impaired.
Initially measured at fair value using
transaction prices at the trade date.
Subsequently measured at fair value
using bid prices at end of period, with
changes in fair value recognized in OCI
(without recycling to Net income).
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) on
investment portfolio.
The effective portion of designated cash
flow hedges and net investment hedges
in foreign operations is recognized in
foreign currency gains (losses) in OCI.
Initially measured at fair value using
transaction prices at the trade date.
Subsequently measured at amortized
cost using the effective interest method.
Initially measured at fair value at the
issuance date net of transaction costs.
Subsequently measured at amortized
cost using the effective interest method.
Initially measured at fair value at the
amount owing.
Subsequently measured at amortized
cost using the effective interest method.
24
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
b) Classification and measurement of financial assets and financial liabilities under IAS 39
Table 3.11 – Classification of the Company’s most significant financial instruments under IAS 39
Classification
Financial
instruments Description
AFS
Debt securities
Designated as
FVTPL on initial
recognition
Classified as
FVTPL
Common
shares and
preferred
shares
Other
instruments
Debt securities
backing
insurance
contracts and
some common
shares
Common
shares
Derivative
financial
instruments
Embedded
derivatives
Contingent
considerations
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.
investments backing
A portion of the Company’s
its
insurance contracts has been voluntarily designated as
FVTPL to reduce the volatility caused by fluctuations in fair
values of underlying insurance contracts 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 insurance contracts.
Investments purchased with the intention of generating
profits in the near term.
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.
Financial liability arising from a business combination to be
remeasured at fair value based on future performance.
Amortized cost -
Cash and cash
equivalents,
loans and
receivables
Cash and cash
equivalents
Loans and
receivables
Amortized cost
– Other financial
liabilities
Debt
outstanding
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.
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.
Securities sold
under
repurchase
agreements
The sale of securities together with an agreement to
repurchase them in the short-term, at a set price and date.
Initial and subsequent measurement
Initially measured at fair value 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) on investment portfolio when
realized or impaired.
Refer to 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) on
investment portfolio.
The effective portion of designated cash flow
hedges and net investment hedges in foreign
operations is recognized in foreign currency
gains (losses) in OCI.
Initially measured at fair value based on the
estimate on the date of the transaction.
in Acquisition,
Subsequently measured at fair value based on
revised estimates, with changes in fair value
recognized
integration and
restructuring costs. Refer to Level 3 hereafter for
more details on the fair value measurement.
Initially measured at fair value using transaction
prices at the trade date.
Subsequently measured at amortized cost using
the effective interest method.
Initially measured at fair value at the issuance
date net of transaction costs.
Subsequently measured at amortized cost
using the effective interest method.
Initially measured at fair value at the amount
owing.
Subsequently measured at amortized cost
using the effective interest method.
INTACT FINANCIAL CORPORATION 25
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
c)
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 3.12 – Three-level fair value hierarchy
Levels
Description
Type of financial instruments normally classified as such
Level 1
Level 2
Level 3
Quoted prices in active
markets for identical assets or
liabilities
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 debt securities1
• Common shares and preferred shares
•
Investments in mutual funds
• Exchange-traded derivatives
• 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 under
IAS 39 (not applicable under IFRS 9 as embedded derivatives are not separated)
• Private funds
• Contingent considerations
•
Investment property
• Other investments
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.
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.
26
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 under IAS 39 (as under IFRS 9 it is not
separated) – 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 estimating fair value based on a discounted
cash flow model that adds spreads for credit and illiquidity to a risk-free discount rate. Discount rates employed in the model
range from 4.2% to 9.9% and have a weighted average of 7.2% as at December 31, 2023 (3.5% to 11.6% and 7.1%,
respectively, as at December 31, 2022). In some cases, the Company discusses 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. These valuations reflect yield ranges between 5.4% to 12.1% and
a weighted average of 6.4% as at December 31, 2023 (5.0% to 10.8% and 6.3%, respectively, as at December 31, 2022).
• Other investments – Other investments mainly include direct investments in early-stage companies, fund investments, and
investments in brokers for which the Company does not have significant influence nor control. They also include investments
in associates held by a venture capital organization that the Company elected to measure at FVTPL in accordance with
IFRS 9. The fair value is determined using estimates such as future cash flows, discount rates, projected earnings multiples,
multiples of broker commissions, or recent transactions.
INTACT FINANCIAL CORPORATION 27
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
d) Derivative financial instruments and hedging
The Company enters a variety of derivative financial instruments to manage its exposure arising from financial assets and financial
liabilities. 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 some instances, the Company enters into derivatives in order to manage its exposure arising from the purchase
price of acquisitions made in foreign currency.
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 and presented in Other assets, while derivative
financial instruments with a negative fair value are recognized as liabilities and presented in Financial liabilities related to investments.
Changes in fair value are recognized in Net gains (losses) on investment portfolio unless the derivative financial instruments are part
of a qualified hedging relationship.
Derivatives that qualify for hedge accounting
In certain circumstances, these derivatives also meet the requirements for hedge accounting. In which case, a hedging relationship
is designated and formally documented at inception by describing the risk management objective and strategy, the hedged item as
well as the methodology used to assess hedge effectiveness. Risk management strategies when eligible for hedge accounting have
been designated as net investment hedges in a foreign operation, cash flow hedges or fair value hedges.
• 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 currency gains (losses) in OCI.
• Cash flow hedges – The Company 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) on investment portfolio
in Net income.
• 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) on investment portfolio 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. In the year ended December 31, 2022, the
Company also used 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.
Hedge effectiveness is evaluated at inception and throughout the term of the hedge. For net investment hedges, effectiveness is
evaluated by using the dollar offset method based on spot foreign currency rates which is not expected to result in any ineffectiveness.
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. In the case of a sale or early
termination of the hedged item, any balance remaining in AOCI as a result of hedge accounting with this hedged item is reclas sified
to Net income.
Derivatives not designated for hedge accounting
Certain derivative instruments, while providing effective economic hedges, are not designated as hedging instruments in formal hedge
accounting relationships. Changes in the fair value of such derivatives are recognized in Net gains (losses) on investment portfolio in
Net income. Refer to Note 8 – Derivative financial instruments for details.
28
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
e) 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 3.10 and Table 3.11 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.
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.
f)
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.
g) Revenue and expense recognition
Net investment income
Interest income from loans is recognized on an accrual basis, using the effective interest rate method.
•
• Dividends are recognized when the shareholders’ right to receive payment is established, which is the ex-dividend date.
•
Income on debt securities is classified as follows:
o FVTOCI and AFS is recognized in interest income using the effective interest rate method, including the amortization of
premiums earned or discounts incurred as well as transaction costs.
o FVTPL is recognized in interest and similar income on securities designated or classified as FVTPL using a similar
methodology except that transaction costs are expensed as incurred.
Net gains (losses) on investment portfolio
• Gains and losses on the sale of FVTOCI debt and FVTPL debt and equity securities under IFRS 9 and AFS debt and equity
securities under IAS 39 are generally calculated on a first in, first out basis, except for certain equity strategies on
investment portfolio.
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.
•
•
INTACT FINANCIAL CORPORATION 29
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
h)
Impairment of financial assets other than those classified or designated as FVTPL under IFRS 9
The Company assesses, on a forward-looking basis, the ECL associated with its assets carried at amortized cost and FVTOCI debt
securities. The impairment methodology applied depends on whether there has been a significant increase in credit risk or an
actual default.
Table 3.13 – Staging
Staging
Debt securities
Stage 1 (12 months)
Stage 2 (Life-time)
Stage 3 (Life-time)
Credit risk of the financial instrument is low (investment grade) or credit risk has not increased
significantly since initial recognition (performing).
Credit risk has increased significantly since inception (underperforming) but the financial instrument is
not credit impaired.
Financial instrument is credit impaired. Refer to Note 10.4 d) – Impairment assessment.
At each reporting date, the Company recognizes an allowance for debt instruments measured at FVTOCI or at amortized cost.
• The ECL does not reduce the carrying amount of FVTOCI financial assets, which remain at their fair value. Instead, an
amount equal to the allowance and its subsequent changes is reclassified from OCI to Net income. Refer to Note 10.4 d) –
Impairment assessment for more details.
• The ECL for financial instruments measured at amortized cost reduces the carrying amount of these financial assets with a
corresponding expense recognized in Net income in Net gains (losses) on investment portfolio.
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 uses the low credit risk simplification as
approximatively 94% of the debt securities portfolio (95% as at December 31, 2022) consists of investment-grade financial instruments
with a quoted market price.
For trade receivables only, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses
to be recognized from initial recognition of the receivables.
IFRS 9 requires management to use judgments, estimates and assumptions. Refer to Note 10.4 d) – Impairment assessment for
more details.
i)
Impairment of financial assets other than those classified or designated as FVTPL under IAS 39
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, is 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.
•
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 3.14 – Objective evidence of impairment for equity impairment model
Unrealized loss position Common shares
Significant
Prolonged
Significant and prolonged Unrealized loss for 9 consecutive months or more and unrealized loss of 25% or more
Unrealized loss of 50% or more
Unrealized loss for 15 consecutive months or more
30
INTACT FINANCIAL CORPORATION
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INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 3.15 – Impairment models
Debt
Equity
Loans and receivables
• Debt securities
• Preferred shares redeemable
at the option of the holder
• Perpetual preferred shares
purchased with the intent of
holding for the long-term1
• Common shares
• Perpetual preferred
shares not impaired using
the debt impairment
model1
•
Loans and receivables:
o Significant (tested individually)
o Otherwise (grouped by similar
characteristics for testing)
t
n
e
m
e
r
Difference between amortized cost
and current fair value less any
unrealized loss on that security
previously recognized.
Impairment loss removed from OCI and recognized in Net gains
(losses) on investment portfolio
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.
Impairment loss recognized in Net gains (losses)
on investment portfolio
Recognized in Net gains (losses)
on investment portfolio 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) on investment
portfolio 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.
3.5 Business combinations
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 31
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.6 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 32 –
Segment information).
Upon disposal of a portion of a CGU through a sale of a business as defined within IFRS 3, 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 at the CGU level.
The amortization method and terms of intangible assets assessed as having finite useful lives are shown below.
Table 3.16 – 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 income and expense in the Consolidated statements of income.
3.7 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.
32
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 currency gains and losses are recognized in income except for:
o AFS equity securities where unrealized foreign currency gains and losses are recognized in OCI until the asset is sold
or becomes impaired under IAS 39;
o FVTOCI equity securities where unrealized foreign currency gains and losses remain in OCI under IFRS 9; and
o Designated hedges where unrealized foreign currency gains and losses are recognized in OCI under IFRS 9.
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 3.17 – Exchange rates used
USD vs CAD
GBP vs CAD
EUR vs CAD
DKK vs CAD
As at
Average rate for the years
December 31,
2023
December 31,
2022
January 1,
2022
1.325
1.689
1.463
0.196
1.354
1.637
1.449
0.195
1.265
1.710
1.439
0.193
2023
1.350
1.679
1.460
0.196
2022
1.302
1.607
1.370
0.184
3.8 Investments in associates and joint ventures
The Company’s investments in associates and joint ventures are mainly composed of investments in brokers which are part of the
Company’s distribution channels through which it offers its insurance products. These investments 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.
INTACT FINANCIAL CORPORATION 33
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.9 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 3.18 – Depreciation methods and terms of property and equipment
Property and equipment
Buildings
Furniture and equipment
Leasehold improvements
Method
Straight-line
Straight-line
Straight-line
3.10 Investment property and rental income
Term
15 to 40 years
2 to 10 years
Over the terms of related leases or 10 years
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) on investment portfolio in Net income. Rental income
from the related operating leases is recognized as Net investment income in Net income on a straight-line basis over the length of
the lease.
3.11 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 depreciation expense is presented in Insurance service expense or Other income and expense, and the interest
expense is presented in Other finance costs in the Consolidated statements of income.
3.12 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.
34
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.13 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
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.
3.14 Share-based payments
The Company has four 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;
• The three-year average combined ratio of the US, UK or Global Specialty Line operations compared to a specific target; or
• A combination of both.
Most RSUs automatically vest three years from the year of the grant. Vesting of 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; and
•
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).
INTACT FINANCIAL CORPORATION 35
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 the Company’s 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.
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
The Company maintains 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.
36
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
3.15 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.
3.16 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 4 – Material accounting judgments, estimates and assumptions
4.1 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
Business combinations and disposals
Note 4.2
Note 5.3
Impairment of financial assets
Measurement of income taxes
Insurance and reinsurance contracts
Note 11.3
Valuation of DB obligation
Impairment of goodwill and intangible assets
Note 14.2
Reference
Note 24.1
Note 28.6
Note 31.8
INTACT FINANCIAL CORPORATION 37
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
4.2 Global economic environment
Global financial market volatility
The Company continued to observe a significant volatility in financial markets. Several recession indicators are pointing to difficult
quarters ahead. Inflation has cooled but remains above targets, with central banks reaffirming their intention to bring it in line. The
increase in interest rates is affecting asset values and the Company is closely monitoring the impact of lower commercial real estate
values and the decrease in lending appetite from US banks.
The increased uncertainty required management to use judgments, 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 24 – Net investment income and net insurance finance result);
• The valuation of the DB obligation and the related plan assets (refer to Note 31 – Employee future benefits); and
• The valuation of provisions in the liability for incurred claims to reflect the potential risks for certain lines of business (refer to
Note 11 – Insurance and reinsurance contracts).
Geopolitical tensions
The wars in Ukraine and Gaza have caused instability in the global economy and markets. While the Company’s direct exposure to
Russia-Ukraine and Israel-Gaza is immaterial, it continues to closely monitor for any indirect impacts.
Note 5 – Business combinations and disposals
5.1 Business combinations
a) Business acquisitions completed in 2023
The Company completed the following acquisition during the year ended December 31, 2023:
Direct Line Insurance Group plc’s brokered commercial lines operations
On September 6, 2023, the Company announced that it had entered into an agreement to acquire the brokered Commercial Lines
operations of Direct Line Insurance Group plc (“DLG”), a P&C company with leading market positions in the UK (“the DLG brokered
commercial lines acquisition”). The acquisition is expected to strengthen the Company’s UK Commercial Lines platform, broaden its
broker distribution network and expand its current Commercial Lines product offering.
The acquisition was approved by the Board of Directors of both companies and closed on October 26, 2023 following approval by
DLG’s shareholders on October 19, 2023.
The purchase price included an initial cash consideration of £520 million ($869 million) paid on October 26, 2023 with potential for up
to a further £30 million ($50 million) contingent payment under earnout provisions relating to the financial performance of the acquired
business lines.
38
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The acquisition was structured through several agreements as described below:
• Business combination – The business transfer agreement related to new business franchise and certain operations,
renewal rights, data, brands, employees, contractors, third party contracts, and premises and the operational transfer is
expected to occur in the second quarter of 2024. The business transfer agreement resulted in a business combination as the
Company controlled these net assets from the closing date, as a result, the acquired net assets were consolidated from
that date.
• Quota share reinsurance agreement – The reinsurance agreement related to premiums written but not yet earned starting
from October 1, 2023. As a result, substantially all of the future economics of the business were transferred to the Company
before policies will be renewed by the Company starting in the second quarter of 2024. The reinsurance agreement was
recognized in direct insurance results in the fourth quarter of 2023. In addition, if approved by the High Court of Justice in
England and Wales these policies will be legally transferred to the Company.
• Administration and transitional services arrangements – The Company entered into certain arrangements to ensure the
servicing of policies during the transition.
As part of the acquisition, DLG will retain claims incurred related to premiums earned pre-October 1, 2023. As a result, the Company
is not exposed to any development on prior-year claims related to premiums earned pre-October 1, 2023.
Financing for the purchase price of $869 million (£520 million) and expected related integration costs of approximately $75 million
(£45 million) was secured through a combination of $500 million from the aggregate gross proceeds of the $575 million bought deal
public offering of common shares, $400 million from the issuance of medium-term notes, and a new term loan facility. Refer to Note 20
– Share capital and Note 19 – Debt outstanding for more details.
The Company economically hedged the purchase price and other items to foreign currency fluctuations. Refer to Note 8.3 – Currency
hedging in relation with the DLG brokered commercial lines acquisition.
The following table summarizes the consideration and the preliminary fair value of the assets acquired and liabilities assumed as at
the acquisition date. The final determination of the fair value will be completed within the prescribed period of one year following
the acquisition.
Table 5.1 – The DLG brokered commercial lines acquisition
As at the acquisition date (October 26, 2023)
Purchase price
Cash consideration
Contingent consideration1
Total purchase price
Fair value of the identifiable assets acquired and liabilities assumed
Assets
Intangible assets
Other
Liabilities
Deferred tax liabilities
Other
Total identifiable net assets acquired
GBP
CAD
520
3
523
229
2
(32)
(2)
197
869
5
874
383
3
(53)
(3)
330
Goodwill
Exchange rate (GBP/CAD)
1 Recorded at fair value based on estimates of future profitability metrics, discounted using information as of the measurement date and classified in Level
1.67080
326
544
3 of the fair value hierarchy.
The intangible assets recognized on acquisition were mainly related to distribution networks, amortized over a 15-year period, and
trade names, amortized over an 8-year period.
The fair value of the acquired distribution networks was determined using discounted cash flows with the key estimates and
assumptions as follows:
• Cash flow projections included estimated growth rates and profitability, broker attrition rates, synergies and contributory asset
charges such as capital required to operate.
• Discount rate was based on the weighted-average cost of capital for comparable companies with similar activities.
INTACT FINANCIAL CORPORATION 39
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Trade names were determined using the relief-from royalty method, an income approach using a projection of growth 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.
Goodwill reflects new business growth, tax synergies and the quality of the acquired businesses. Goodwill is not deductible for tax
purposes. The final determination of the fair value of identifiable assets acquired and liabilities assumed will be completed within the
prescribed period of one year following the acquisition.
From October 1 to December 31, 2023, the contribution from the acquisition, including the Quota share agreement, to Insurance
revenue and Income before income taxes was $257 million and $(26) million respectively for the year-ended December 31, 2023. On
a pro-forma basis from January 1, 2023, the contribution to Insurance revenue would have been $921 million. The pro-forma basis
was calculated using historical information and is not necessarily indicative of the Insurance revenue that would have been derived if
the acquisition occurred on January 1, 2023, or the Insurance revenue that may be obtained in the future. The contribution to Income
before income taxes on a pro forma basis cannot be determined based on historical information as the business acquired was operated
in conjunction with other business activities that have not been acquired by the Company. On a pro-forma basis from January 1, 2023,
the amortization expense related to the acquired intangible assets would have been $34 million.
For the year ended December 31, 2023, the Company recognized acquisition costs of $24 million and integration costs of $9 million
in the line Acquisition, integration and restructuring costs.
b) Business acquisitions completed in 2022
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. 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 19 – Debt outstanding for more details. Subsequent to year-end, on January 1, 2024, Highland Insurance Solutions was
rebranded to Striior Insurance Solutions.
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.
5.2 Disposals
a) Disposals announced in 2023
The Company announced the following disposals during the year ended December 31, 2023:
UK Personal Lines
In 2023, the Company exited the UK Personal Lines market following a series of announcements.
On March 28, 2023, the Company announced its exit from the UK Personal Lines motor market as part of initiatives aimed at improving
the strength and sustainability of its UK&I business. The exit also resulted in the sale of renewal rights to Atlanta Group.
Subsequently, on December 7, 2023, the Company announced it had entered into an agreement to sell its UK direct Home and Pet
operations to Admiral Group plc (“Admiral”) for an initial cash consideration of £85 million ($143 million), with a potential for up to a
further £33 million ($55 million) subject to the fulfilment of certain retention thresholds. The transaction will result in the transfer of
renewal rights, brands, and employees. However, the Company will retain claims incurred prior to closing. The sale was approved by
the Boards of Directors of both companies and is expected to close in the first half of 2024. The net assets related to the operations
to be sold were not material as at December 31, 2023. The expected gain on sale of business will be recognized in Other net gains
(losses) on closing.
On the same date, the Company announced its exit from the UK Home and Pet partner and broker contracts.
The Company recorded restructuring costs of $147 million in Acquisition, integration and restructuring costs for the year ended
December 31, 2023, related to these transactions.
40
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
b) Business disposals completed in 2022
The Company completed the following disposals during the year ended December 31, 2022:
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 18 – 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 Other
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 Material 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 estimates of future cash flows and discount
rates. However, actual results can be different from those estimates. 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.
INTACT FINANCIAL CORPORATION 41
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, 2023 (IFRS 9)
Cash and cash equivalents
Short-term notes
Fixed income
Investment grade
Government
Corporate
Asset-backed2
Mortgage-backed
Agency3
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
As at December 31, 2022 (IAS 39)
Cash and cash equivalents
Short-term notes
Fixed income
Investment grade
Government
Corporate
Asset-backed2
Mortgage-backed
Agency3
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
FVTOCI
FVTPL
Classified
as FVTOCI1
Designated
as FVTOCI
Classified
as FVTPL
Designated
as FVTPL
-
1,588
3,760
7,830
1,235
1,273
417
129
-
16,232
-
-
-
-
-
-
-
16,232
-
-
-
-
-
-
-
-
-
-
4
293
695
992
-
-
-
992
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
-
-
-
-
84
28
71
-
1,567
1,750
-
2
390
392
4,668
480
-
7,290
-
-
6,448
3,205
294
274
212
21
-
10,454
-
-
-
-
-
-
-
10,454
Fair value
Classified as
FVTPL
Designated as
FVTPL
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12
476
-
488
-
-
4,880
3,327
187
207
224
14
-
8,839
-
-
-
-
1,427
-
-
10,266
Amortized cost1
Carrying
amount
1,171
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
944
2,115
Amortized cost
Carrying
amount
1,010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,001
2,011
Total
carrying
amount
1,171
1,588
10,208
11,035
1,613
1,575
700
150
1,567
28,436
4
295
1,085
1,384
4,668
480
944
37,083
Total
carrying
amount
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
1 As at December 31, 2023 these investments were classified as stage 1 and the allowance for ECL on securities at amortized cost and classified as
FVTOCI were $2 million and $11 million, respectively.
2 Credit card receivables and auto loans.
3 Publicly traded MBS, which carry the full faith and credit guarantee of the US Government or are guaranteed by a government sponsored entity.
42
INTACT FINANCIAL CORPORATION
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, 2023 (IFRS 9)
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
December 31, 2022 (IAS 39)
Cash and cash equivalents
Debt securities
Preferred shares1
Common shares
Investment property
Loans
FVTPL
investments
Carrying
amount
Other investments
Amortized
cost
Unrealized
gains2
Unrealized
losses2
Carrying
amount
Total
investments
Carrying
amount
-
12,204
392
4,668
480
-
17,744
-
8,839
-
1,439
476
-
10,754
1,171
16,736
1,141
-
-
944
19,992
1,010
19,416
1,637
3,272
-
1,001
26,336
-
124
9
-
-
-
133
-
75
13
124
-
-
212
-
(628)
(158)
-
-
-
(786)
-
(1,235)
(229)
(237)
-
-
(1,701)
1,171
16,232
992
-
-
944
19,339
1,010
18,256
1,421
3,159
-
1,001
24,847
1,171
28,436
1,384
4,668
480
944
37,083
1,010
27,095
1,421
4,598
476
1,001
35,601
1 Includes unrealized gains (losses) on embedded derivatives of $19 million as at December 31, 2022. These derivatives were presented in Investments,
with the related perpetual preferred shares, on the Consolidated balance sheets. The change in fair value of these derivatives was recognized in Net
gains (losses) on investment portfolio.
2 Foreign amounts are translated using the period-end exchange rate.
INTACT FINANCIAL CORPORATION 43
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 6.3 – Collateral
As at December 31,
Collateral pledged
Collateral accepted
2023
649
2,754
2022
697
3,731
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 in Other assets. Collateral accepted is mainly
related to securities loaned which as at December 31, 2023 had a fair value of $2,631 million ($3,616 million as at
December 31, 2022). The related collateral accepted represents approximately 105% of the fair value of the securities loaned as at
December 31, 2023 (105% as at as at December 31, 2022).
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
2023
35
91
9
135
2022
33
147
9
189
44
INTACT FINANCIAL CORPORATION
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
The Company generally uses derivatives for economic hedging purposes and to improve the risk profile of its investment portfolio, as
long as the resulting exposures remain within the guidelines of its investment policy. In certain circumstances, these derivatives also
meet the requirements for hedge accounting. Risk management strategies eligible for hedge accounting have been designated as net
investment hedges in foreign operations, cash flow hedges and fair value hedges. The following table summarizes the types of
derivatives used by the Company.
Table 8.1 – Types of derivatives used
Derivatives
Description
Objective
Designation
Forwards
Contractual obligations to exchange:
Currency
One currency for another at a predetermined
future date
Mitigate risk arising from foreign currency
fluctuations on:
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:
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
Credit default
That transfer credit risk related to an underlying
financial instrument from one counterparty to
another
Inflation
That transfer inflation risk from one party to
another
•
•
•
Foreign currency cash inflows and outflows
impacting the Company’s operations;
The Company’s net investment in foreign
operations; and
Not designated
Net investment
hedge
Foreign currency cash flows related to the
purchase price and the Company’s net
investment in foreign operations.
Cash flow hedge if
the transaction
meets the
requirements of
“highly probable"
Modify or mitigate exposure to interest rate
fluctuations
Not designated
Mitigate exposure to equity market
Not designated
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 and
Fair value hedge
Mitigate exposure to equity market fluctuations Not designated
Modify exposure to credit risk
Not designated
Modify exposure to inflation risk
Not designated
INTACT FINANCIAL CORPORATION 45
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
The following table presents the notional amount by remaining term to maturity and fair value of the derivatives held by the Company
based on their designation in qualifying hedge accounting relationships.
Table 8.2 – Fair value and notional amount of derivatives
As at December 31, 2023
Type of hedge
Risk hedged
Instrument type
Designated for hedge accounting
Net investment hedges
Currency risk
Currency forward
contracts
Cash flow hedges
Currency risk
Cross currency interest
Fair value hedges
Currency risk and
interest risk
rate swaps
Cross currency interest
rate swaps
Fair value hedges
Interest risk
Interest rate swaps
Not designated for hedge accounting
Currency forward
contracts
Interest rate futures
Equity swaps
Equity futures
Inflation swaps
As at December 31, 2022
Type of hedge
Risk hedged
Instrument type
Designated for hedge accounting
Net investment hedges
Currency risk
Currency forward
contracts
Cash flow hedges
Currency risk
Cross currency interest
Fair value hedges
Currency risk and
interest risk
rate swaps
Cross currency interest
rate swaps
Fair value hedges
Interest risk
Interest rate swaps
Not designated for hedge accounting
Currency forward
contracts
Interest rate futures
Equity swaps
Equity futures
Inflation swaps
Term to maturity (notional amount)
Fair value
Less than 1
year
From 1
to 5 years
Over 5
years
Total
Asset
Liability
4,992
5
-
-
4,997
1,343
357
1,586
843
-
4,129
9,126
-
42
5
-
47
-
-
-
-
-
-
47
-
27
-
92
4,992
74
5
92
119
5,163
-
-
-
-
203
203
322
1,343
357
1,586
843
203
4,332
9,495
62
-
-
29
91
39
-
8
-
56
103
194
2
9
-
-
11
7
-
52
-
21
80
91
Term to maturity (notional amount)
Fair value
Less than 1
year
From 1
to 5 years
Over 5
years
Total
Asset
Liability
4,953
-
-
-
4,953
1,364
478
1,411
776
-
4,029
8,982
-
48
8
-
56
-
-
-
-
-
-
56
-
26
-
89
4,953
74
8
89
115
5,124
-
-
-
-
196
196
311
1,364
478
1,411
776
196
4,225
9,349
23
-
-
29
52
6
-
60
-
47
113
165
95
13
2
-
110
22
-
-
-
15
37
147
46
INTACT FINANCIAL CORPORATION
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 DLG brokered commercial lines acquisition
Purchase price hedges
In September 2023, in connection with the DLG brokered commercial lines acquisition, the Company entered into foreign currency
forward contracts to hedge the £520 million ($869 million) purchase price to exposures from fluctuations in the CAD/GBP currency
pair. These derivatives have a notional amount of £500 million ($835 million) of which £265 million ($443 million) were contingent on
the closing of the acquisition.
These derivatives, while providing effective economic hedges, did not qualify as cash flow hedges because the transaction was not
highly probable, as it was not yet approved by DLG’s shareholders. As a result, the changes in the fair value were recognized in Other
net gains (losses) in Net income. The Company recognized a loss of $20 million for the year ended December 31, 2023, related to
these derivatives. Refer to Note 25 – Other net gains (losses) for more details.
These derivatives were settled upon closing of the acquisition.
Net investment hedges
In September 2023, the Company also entered into a foreign currency forward contract for a notional amount of £235 million
($393 million) to hedge the currency risk related to the initial carrying value of the business to be acquired. The change in the fair
value of this derivative was recognized through Other net gains (losses) in Net income until closing of the transaction as the Company
did not have any book value exposure to the business until the acquisition closed. The Company recognized a gain of $6 million for
the year ended December 31, 2023 related to this derivative. Refer to Note 25 – Other net gains (losses) for more details.
After the closing of the acquisition, this derivative was designated as a hedge of net investments in foreign operations, with changes
in fair value recognized in OCI.
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 Other 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 Other 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 18 – Assets held for sale for more details.
INTACT FINANCIAL CORPORATION 47
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 value
Table 9.1 – Fair value hierarchy of financial assets, investment property and financial liabilities measured at fair value
As at
December 31, 2023 (IFRS 9)
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 shares
Common shares
Investment property
Derivative financial assets (Table 8.2)
Financial assets and investment property measured at fair value
Financial liabilities measured at fair value (Table 7.1)
December 31, 2022 (IAS 39)
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)
Financial assets and investment property measured at fair value
Level 1
Valued using
quoted
(unadjusted)
market prices
Level 2
Level 3
Valued using models
with
observable
inputs
without
observable
inputs
1,582
6
4,749
-
-
-
-
-
-
6,331
1,384
4,539
-
-
12,254
9
1,786
4,354
-
-
-
-
-
-
6,140
1,421
4,433
-
-
11,994
5,459
11,035
1,613
1,575
700
150
-
20,538
-
-
-
194
20,732
91
-
5,354
10,301
1,355
1,455
814
170
-
19,449
-
-
-
165
19,614
-
-
-
-
-
-
-
1,567
1,567
-
129
480
-
2,176
-
-
-
-
-
-
-
-
1,506
1,506
-
165
476
-
2,147
Total
1,588
10,208
11,035
1,613
1,575
700
150
1,567
28,436
1,384
4,668
480
194
35,162
100
1,786
9,708
10,301
1,355
1,455
814
170
1,506
27,095
1,421
4,598
476
165
33,755
Financial liabilities measured at fair value (Table 7.1)
1 Includes perpetual preferred shares with call options amounting to $1,196 million as at December 31, 2022. The fair value of the embedded derivatives
156
147
9
-
component amounting to $62 million as at December 31, 2022 was determined using a Level 3 methodology.
The fair value of loans was $904 million as at December 31, 2023 ($971 million as at December 31, 2022). The carrying amount of
certain short-term financial instruments not measured at fair value is a reasonable approximation of their fair value.
48
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
9.2 Reconciliation of fair value 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
Year ended
December 31, 2023 (IFRS 9)
Balance, beginning of the year
Total gain (losses) recognized in Net income
Purchases
Disposals
Exchange rate differences
Transfer to Level 2
Balance, end of year
Year ended
December 31, 2022 (IAS 39)
Balance, beginning of the year
Total gain (losses) recognized in:
Net income
OCI
Purchases
Disposals
Exchange rate differences
Balance, end of year
Note 10 – Financial risk
Classified as FVTPL
Debt
securities
Common
shares
Investment
property
1,506
10
265
(188)
(17)
(9)
1,567
165
(16)
-
(26)
6
-
129
476
(14)
20
(15)
13
-
480
AFS
Debt
securities
Common
shares
Classified as FVTPL
Common
shares
Investment
property
1,444
1
(22)
511
(468)
40
1,506
210
13
3
18
(74)
(8)
162
5
(1)
-
-
(1)
-
3
634
(17)
-
11
(114)
(38)
476
Total
2,147
(20)
285
(229)
2
(9)
2,176
Total
2,293
(4)
(19)
540
(657)
(6)
2,147
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.
INTACT FINANCIAL CORPORATION 49
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 credit
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
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;
• DB pension plan obligations, net
of related debt securities; and
Insurance and reinsurance
contracts.
•
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 insurance and
reinsurance contracts offers a partial
offset to the change in price of interest
sensitive assets.
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.
Investments
supporting the
Company’s Canadian
operations
denominated in
foreign currencies.
A portion of foreign
currency inflows and
outflows impacting the
Company’s
operations.
Set forth limits in
terms of currency
exposure through
investment policies.
Using foreign currency
derivatives.
Risk of losses arising from
changes in property prices.
Exposure to price changes
for property including
investment properties held
in the pension plans.
Set forth limits in terms of
direct property exposure
through investment
policies.
Used to back the
Company’s long-tailed
liability for incurred claims.
The Operational Investment Committee and Governance and Sustainability Committee regularly monitor and review compliance,
respectively, with the Company’s investment policies.
50
INTACT FINANCIAL CORPORATION
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 December 31,
Equity price risk
Common share prices (10% decrease)2
Preferred share prices (5% decrease)3
Property price risk (10% decrease)
Interest rate risk (100 bps increase)4
Debt securities5,6
Net liability for incurred claims before net payables and claims
reported under the GMM7
DB pension plan obligation, net of related debt securities and
annuity buy-in insurance
Currency risk8
Strengthening of CAD by 10% vs all currencies
Net assets of foreign operations in:
USD
GBP
2023
2022 (Restated)1
Net income
OCI Net income
OCI
(158)
(14)
(35)
(66)
(36)
-
(166)
(15)
(36)
(87)
(38)
(22)
(301)
(424)
(368)
(386)
350
-
-
84
319
-
-
(75)
(5)
3
(234)
(286)
(11)
4
(219)
(235)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Including the impact of common shares (net of any equity hedges, including the impact of any impairment).
3 Including the impact on related embedded derivatives.
4 Excludes the impact of credit spreads.
5 Excluding the impact of debt securities related to the DB pension plan.
6 Interest rate sensitivity is based on the fixed-income portfolio, which comprises approximately 48% of government-related securities and 52% of
corporate-related securities.
7 Including the impact of a +0.5% change in the discount rate of net periodic payment orders.
8 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; and
•
Impact on the Company’s pension plans has been considered.
FVTOCI debt securities in an unrealized loss position, as reflected in AOCI, may be realized through sales in the future.
INTACT FINANCIAL CORPORATION 51
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,
All amounts in CAD
Investments supporting Canadian operations
Foreign-currency derivatives, notional amount2
Consolidated net assets of foreign operations
Foreign-currency derivatives, notional amount2
Other net assets in foreign currency
USD
3,694
(3,655)
39
2,556
-
2,556
54
2023
GBP
-
-
-
4,267
(1,403)
2,864
(38)
2022 (Restated)1
EUR
-
-
-
515
(249)
266
-
USD
3,373
(3,349)
24
2,494
-
2,494
150
GBP
EUR
-
-
-
3,572
(974)
2,598
(56)
-
-
-
588
(279)
309
-
Total net currency exposure
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 The average contractual rate of currency forward contracts designated in hedging relationships as net investment hedges were 1.3639 for USD/CAD
2,826
2,649
266
2,668
2,542
309
contracts and 1.6890 for GBP/CAD contracts as at December 31, 2023 (1.3760 and 1.5985 respectively, as at December 31, 2022).
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 liability for incurred claims before net payables and claims
reported under the GMM
2023
2022 (Restated)1
Fair value
Duration
(in years)
Fair value
Duration
(in years)
28,436
1,384
21,641
3.5
3.6
2.1
27,095
1,421
20,591
3.2
4.0
2.0
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
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 Alternative Reference Rates (“ARRs”) as part of the IBOR reform, certain benchmark rates were or will
be discontinued. The transition results in changes in methodology and may cause increased financial, operational, legal and regulatory
risks. 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 finalizing its transition and expects its exposure to the transition to end in 2024.
The Company had no significant exposure to IBORs that have yet to transition to ARRs as at December 31, 2023 and 2022.
52
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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, its
reinsurance contracts assets and its structured settlement agreements entered with various life insurance companies. The Company
is also subject to counterparty credit risk arising from over-the-counter derivatives, repurchase agreements, and 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
Reinsurance contract assets
Other financial assets2
On-balance sheet credit risk exposure
Structured settlements
2023
1,171
28,436
1,384
944
5,217
1,340
38,492
1,488
2022
(Restated)1
1,010
27,095
1,421
1,001
5,004
1,394
36,925
1,660
Off-balance sheet credit risk exposure
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Mainly includes other receivables and recoverables, financial assets related to investments, restricted funds, accrued investment income, and on-balance
1,488
1,660
sheet structured settlements.
Structured settlements
The Company has obligations to pay certain fixed amounts to claimants on a recurring basis and has purchased annuities from various
Canadian 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.
INTACT FINANCIAL CORPORATION 53
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
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
Credit risk concentration
2023
2022
37%
22%
23%
12%
6%
38%
23%
22%
11%
6%
100%
100%
2023
2022
-%
68%
32%
100%
1%
72%
27%
100%
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
US and European investment portfolios help 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
54
INTACT FINANCIAL CORPORATION
2023
2022
53%
26%
10%
11%
54%
25%
9%
12%
100%
100%
33%
25%
11%
4%
27%
33%
26%
11%
4%
26%
100%
100%
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 13.2 – Risk management and counterparty credit risk). The Company
applies limits against that aggregate exposure, which are more conservative than OSFI’s limits. Investment portfolio diversification
helps to mitigate credit risk and is monitored against established guidelines with respect to exposure to individual issuers.
Most of the investment portfolio is invested in well established, active and liquid markets.
c) Counterparty credit risk
Counterparty credit risk arises from reinsurance (refer to Note 13.2 – Risk management and counterparty credit risk), over-the-
counter derivatives, repurchase agreements, securities lending and borrowing transactions.
Over-the-counter derivatives, repurchase agreements, 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 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-’ or to be guaranteed by such entity, and to have an issuer credit spread below established thresholds.
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 derivatives, repurchase agreements, 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 $207 million as at December 31, 2023 ($205 million as at December 31, 2022) 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.
d)
Impairment assessment under IFRS 9
The Company’s ECL assessment and measurement method is set out below.
Expected credit loss
The Company assesses the possible default events within 12 months for the calculation of the 12mECL for investments in stage 1 of
the ECL. Given the investment policy, the probability of default for new instruments acquired is generally determined to be minimal.
Lifetime ECL is required to be calculated for instruments in stages 2 or 3. In all instances, the expected loss given default is based on
external historical data.
INTACT FINANCIAL CORPORATION 55
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Significant increase in credit risk and default
The Company continuously monitors all assets subject to ECLs. To determine whether an instrument or a portfolio of instruments is
subject to 12mECL or LTECL, the Company assesses whether there has been a significant increase in credit risk since
initial recognition.
The Company considers that there has been a significant increase in credit risk when any contractual payments are more than 30
days past due. In addition, the Company also considers a variety of instances that may indicate unlikeliness to pay by assessing
whether there has been a significant increase in credit risk. Such events include:
• The internal rating of the counterparty indicating default or near-default;
• The counterparty having past due liabilities to public creditors or employees;
• The counterparty (or any legal entity within the debtor’s group) filing for bankruptcy application/protection; and
• The counterparty’s listed debt or equity suspended at the primary exchange because of rumours or facts about
financial difficulties.
The Company considers a financial instrument credit impaired for ECL calculations in all cases when the counterparty becomes 90
days past due on its contractual payments. The Company may also consider an instrument to be in default when internal or external
information indicates that the Company is unlikely to receive the outstanding contractual amounts in full. In such cases, the Company
recognizes a LTECL.
Forward-looking information
In its ECL models, the Company relies on a broad range of forward-looking information as economic inputs, such as GDP growth,
unemployment, equity markets indexes and other economic inputs.
The Company’s debt instruments measured at FVTOCI and loans measured at amortized cost are in stage 1 of the ECL model. Due
to the high quality of the Company’s investment portfolio, the allowance for ECL was not significant as at December 31, 2023. Refer
to Table 6.1 – Classification of investments for more details.
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 is 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 19.4 – Other financing).
56
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, 2023
Cash and cash equivalents
Debt securities
Preferred shares
Common shares
Investment property
Loans
Derivative financial assets
December 31, 2022
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
1,171
3,004
-
-
-
82
4,257
109
4,366
1,010
3,758
8
-
-
-
4,776
165
4,941
-
14,811
4
-
-
221
15,036
-
15,036
-
13,515
7
-
-
303
13,825
-
13,825
-
8,975
91
-
-
641
9,707
85
9,792
-
8,297
88
-
-
698
9,083
-
9,083
-
1,646
1,289
4,668
480
-
8,083
-
8,083
-
1,525
1,318
4,598
476
-
7,917
-
7,917
1,171
28,436
1,384
4,668
480
944
37,083
194
37,277
1,010
27,095
1,421
4,598
476
1,001
35,601
165
35,766
b)
Financial liabilities by contractual maturity
Table 10.11 – Financial liabilities by contractual maturity
As at
December 31, 2023
Financial liabilities related to investments
Debt outstanding
Other liabilities:
Lease liabilities – undiscounted value1
Other financial liabilities2
December 31, 2022 (Restated)3
Financial liabilities related to investments
Debt outstanding
Other liabilities:
Lease liabilities – undiscounted value1
Other financial liabilities2
Less than
1 year
From 1 to
5 years
Over
5 years
No specific
maturity
Total
96
655
120
1,280
2,151
164
135
112
1,336
1,747
8
1,457
341
144
1,950
-
1,355
316
112
1,783
22
2,969
366
28
3,385
16
3,032
288
33
3,369
9
-
-
391
400
9
-
-
391
400
135
5,081
827
1,843
7,886
189
4,522
716
1,872
7,299
1 Lease liabilities includes discounting of $167 million as at December 31, 2023 ($94 million as at December 31, 2022) (refer to Note 17.2 – Other
liabilities).
2 Excludes facility carrier payables, pension plans in a deficit position and unfunded plans, other post-employment benefits and other post-retirement
benefits, and other non-financial liabilities.
3 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
INTACT FINANCIAL CORPORATION 57
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
c)
Insurance and reinsurance contracts by maturity
The following table summarizes the maturity profile of portfolios of insurance and reinsurance contracts based on the undiscounted
future cash flows expected to be paid out in the periods presented.
Table 10.12 – Insurance and reinsurance contracts by contractual maturity1
As at
December 31, 2023
Insurance contracts liabilities
Reinsurance contracts assets
December 31, 2022 (Restated)2
Insurance contracts liabilities
Reinsurance contracts assets
Estimates of undiscounted future cash flows
Less
than 1
year
From
1 to 2
years
From
2 to 3
years
From
3 to 4
years
From 4
to 5
years
Over 5
years
No
specific
maturity
Total
12,795
2,967
5,029
836
3,237
399
2,204
238
1,424
149
3,031
438
37
-
27,757
5,027
11,852
2,474
5,192
985
3,332
533
2,265
334
1,452
206
2,885
443
43
-
27,021
4,975
1 Excludes periodic payment orders and the liability for remaining coverage measured under the PAA.
2 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
58
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 11 – Insurance and reinsurance contracts
Table 11.1 – Net carrying amounts of insurance and reinsurance contracts
As at December 31,
Insurance contracts:
Canada
UK&I
US
Total insurance contract liabilities
Reinsurance contracts:
Canada
UK&I
US
Total reinsurance contract assets
Net insurance and reinsurance contracts
11.1 Insurance revenue
Table 11.2 – Insurance revenue
Years ended December 31,
Contracts measured under PAA
Contracts measured under the GMM1
Amounts related to changes in liability for remaining coverage
Risk adjustment recognized for the risk expired
Expected incurred claims and other insurance service expense
Total insurance revenue
1 Insurance revenue from contracts measured under the GMM was related to acquired claims.
Remaining
coverage
2023
Incurred
claims
Total
Remaining
coverage
2022
Incurred
claims
3,134
3,905
1,603
8,642
289
1,307
192
1,788
6,854
14,012
5,071
2,628
21,711
1,097
1,630
702
3,429
17,146
8,976
4,231
30,353
1,386
2,937
894
5,217
18,282
25,136
3,594
4,784
1,313
9,691
336
1,523
261
2,120
7,571
13,219
3,588
2,632
19,439
1,048
1,234
602
2,884
Total
16,813
8,372
3,945
29,130
1,384
2,757
863
5,004
16,555
24,126
2023
23,546
2022
22,525
77
1,884
25,507
137
3,252
25,914
INTACT FINANCIAL CORPORATION 59
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
11.2 Reconciliation of carrying amounts
The following reconciliations show how the net carrying amounts of insurance and reinsurance contracts changed during the period
as a result of cash flows and amounts recognized in Comprehensive income.
The Company presents tables that separately analyze movements in the liability for remaining coverage and the liability for incurred
claims and reconcile these movements to the line items in Comprehensive income (Refer to Tables 11.3 and 11.5).
A second reconciliation is presented for contracts measured under the GMM, which separately analyzes changes in the estimates of
the present value of future cash flows, the risk adjustment and the contractual service margin (Refer to Tables 11.4 and 11.6).
Table 11.3 – Insurance contracts analysis by remaining coverage and incurred claims
Liability for remaining
coverage
December 31, 2023
Liability for incurred claims
Year ended
Excluding
loss
component
Loss
Component1
Contracts
under GMM
Insurance contract liabilities, beginning of year
7,350
2,341
Changes in comprehensive income:
Insurance revenue
(25,507)
-
52
-
Contracts under PAA
Present value
of future
cash flows
Risk
adjustment
18,642
745
Total
29,130
-
-
(25,507)
-
(1,091)
1,537
16,136
345
16,927
Incurred claims and other insurance service
expense
Amortization of insurance acquisition cash
flows
Losses and reversals on onerous contracts
Prior-year development
Insurance service expense
Investment component
Insurance service result from insurance
contracts
Insurance finance expense (income)
Exchange rate differences
5,168
-
-
5,168
(118)
(20,457)
96
47
Total changes in comprehensive income
(20,314)
Cash flows
Premiums received
Claims and other insurance service expense paid
Insurance acquisition cash flows
Total cash flows
Disposals and other2
24,375
-
(5,397)
18,978
20
-
1,224
-
133
-
133
88
46
267
-
-
-
-
-
-
-
-
-
-
(439)
-
-
(296)
1,537
15,697
-
118
1,537
15,815
-
-
870
102
1,537
16,787
-
(1,578)
-
(1,578)
-
-
(14,561)
-
(14,561)
-
49
-
49
37
1
87
-
-
-
-
-
5,168
1,224
(735)
22,584
-
(2,923)
1,091
196
(1,636)
24,375
(16,139)
(5,397)
2,839
20
Insurance contract liabilities, end of year
1 Loss component related to acquired claims was $2,595 million as at December 31, 2023 ($2,250 million as at December 31, 2022) and mostly reflects
claims that the Company will settle later than initially anticipated. The loss component not related to acquired claims is mainly due to certain groups of
insurance contracts in the UK&I.
30,353
20,868
2,608
6,034
832
11
2 Includes the write-off of insurance acquisition cash flows related to the UK Personal Lines exit. Refer to Note 5.2 – Disposals for more details.
60
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Liability for remaining
coverage
December 31, 2022
Liability for incurred claims
Year ended
Excluding
loss
component
Loss
component1
Contracts
under GMM
Insurance contract liabilities, beginning of year
10,886
1,030
Changes in comprehensive income:
Insurance revenue
(25,914)
-
61
-
Contracts under PAA
Present value
of future
cash flows
Risk
adjustment
16,284
685
Total
28,946
-
-
(25,914)
Incurred claims and other insurance service
expense
Amortization of insurance acquisition cash
flows
Losses and reversals on onerous contracts
Prior-year development
Insurance service expense
Investment component
Insurance service result from insurance
contracts
Insurance finance expense (income)
Exchange rate differences
Total changes in comprehensive income
Cash flows:
Premiums received
Claims and other insurance service expense paid
Insurance acquisition cash flows
Total cash flows
Disposals and other2
-
(516)
1,859
14,911
315
16,569
4,833
-
-
4,833
(144)
(21,225)
(164)
(151)
(21,540)
23,466
-
(5,426)
18,040
(36)
-
1,930
-
1,414
-
1,414
(109)
6
1,311
-
-
-
-
-
-
-
-
-
-
(329)
1,859
14,582
-
144
1,859
14,726
-
(1)
(260)
35
1,858
14,501
-
(1,867)
-
(1,867)
-
-
(12,008)
-
(12,008)
(135)
-
-
(253)
62
-
62
(13)
11
60
-
-
-
-
-
4,833
1,930
(582)
22,750
-
(3,164)
(546)
(100)
(3,810)
23,466
(13,875)
(5,426)
4,165
(171)
Insurance contract liabilities, end of year
1 Loss component related to acquired claims was $2,250 million as at December 31, 2022 and mostly reflects claims that the Company will settle later
18,642
29,130
7,350
2,341
745
52
than initially anticipated. The loss component not related to acquired claims is mainly due to certain groups of insurance contracts in the UK&I.
2 Mainly related to RSA Middle East. Refer to Note 5.2 – Disposals 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)
Table 11.4 – Insurance contracts analysis by measurement component – Contracts measured under the GMM
Years ended December 31,
2023
Present value
of future
cash flows
Risk
adjustment
Insurance contract liabilities, beginning of year
6,447
251
2022
Present value
of future
cash flows
Risk
adjustment
8,866
371
Total
6,698
Total
9,237
Changes in comprehensive income:
Changes that relate to current services:
Risk adjustment recognized for the risk
expired
Experience adjustments
Changes that relate to future services:
Changes in estimates that do not adjust the
-
(1,314)
(116)
-
(116)
(1,314)
-
(1,787)
(154)
-
(154)
(1,787)
contractual service margin
1,178
44
1,222
1,704
64
1,768
Insurance service result from insurance
contracts
Insurance finance expense (income)
Exchange rate differences
Total changes in comprehensive income
Cash flows:
Claims and other insurance service expense paid
Total cash flows
Insurance contract liabilities, end of year
(136)
191
110
165
(1,578)
(1,578)
5,034
(72)
6
5
(61)
-
-
190
(208)
197
115
104
(1,578)
(1,578)
5,224
(83)
(239)
(230)
(552)
(1,867)
(1,867)
6,447
(90)
(22)
(8)
(120)
-
-
251
Table 11.5 – Reinsurance contracts analysis by remaining coverage and incurred claims
Year ended
Asset for
remaining coverage
December 31, 2023
Asset for incurred claims
Contracts under PAA
Excluding
loss
recovery
component
Loss
recovery
component1
Contracts
under GMM
Present value
of future
cash flows
Risk
adjustment
(173)
(261)
(238)
(672)
(1,867)
(1,867)
6,698
Total
5,004
Reinsurance contract assets, beginning of year
1,458
Changes in comprehensive income:
Expense from reinsurance contracts
(3,056)
662
-
157
2,608
119
-
-
-
(3,056)
Amounts recoverable for incurred claims and
other expenses
Loss recoveries and reversals on onerous
contracts
Prior-year development
Changes in non-performance risk of reinsurers
Income from reinsurance contracts
Net expense from reinsurance contracts
Reinsurance finance income (expense)
Exchange rate differences
2
-
-
1
3
(3,053)
42
22
Total changes in comprehensive income
(2,989)
Cash flows
Premiums paid
Amounts received
Total cash flows
2,537
(3)
2,534
(321)
542
1,823
404
-
-
83
83
22
18
123
-
-
-
-
-
-
542
542
1
1
544
-
(590)
(590)
-
(5)
(9)
1,809
1,809
127
23
1,959
-
(1,379)
(1,379)
46
-
(41)
-
5
5
5
1
11
-
-
-
2,092
404
(46)
(8)
2,442
(614)
197
65
(352)
2,537
(1,972)
565
Reinsurance contract assets, end of year
1 Loss recovery component related to acquired claims was $781 million December 31, 2023 ($649 million as at December 31, 2022) and is related to the
5,217
1,003
3,188
785
111
130
underlying loss component that was recoverable under the terms of the reinsurance contracts held.
62
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, 2022
Asset for incurred claims
Asset for remaining coverage
Contracts under PAA
Excluding
loss
recovery
component
Loss
recovery
component1
Contracts
under GMM
Present value
of future
cash flows
Risk
adjustment
Reinsurance contract assets, beginning of year
2,642
Changes in comprehensive income
Expense from reinsurance contracts
(3,475)
281
-
195
1,775
-
-
82
-
Total
4,975
(3,475)
Amounts recoverable for incurred claims and
other expenses
Loss recoveries and reversals on onerous
contracts
Prior-year development
Changes in non-performance risk of reinsurers
Income from reinsurance contracts
Net expense from reinsurance contracts
Reinsurance finance income (expense)
Exchange rate differences
Total changes in comprehensive income
Cash flows
Premiums paid
Amounts received
Total cash flows
Disposals and other2
-
-
-
1
1
(3,474)
(34)
(75)
(3,583)
2,394
(26)
2,368
31
(118)
535
1,772
(12)
2,177
529
-
-
411
411
(30)
-
381
-
-
-
-
-
-
-
535
535
-
(2)
533
-
(571)
(571)
-
-
163
(5)
1,930
1,930
(40)
27
1,917
-
(1,038)
(1,038)
(46)
-
48
-
36
36
(3)
4
37
-
-
-
-
529
211
(4)
2,913
(562)
(107)
(46)
(715)
2,394
(1,635)
759
(15)
Reinsurance contract assets, end of year
1 Loss recovery component related to acquired claims was $649 million as at December 31, 2022 and is related to the underlying loss component that
2,608
1,458
5,004
662
119
157
was recoverable under the terms of the reinsurance contracts held.
2 Mainly related to RSA Middle East. Refer to Note 5.2 – Disposals for more details.
INTACT FINANCIAL CORPORATION 63
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 11.6 – Reinsurance contracts analysis by measurement component – Contracts measured under the GMM
Year ended
Reinsurance contract assets, beginning of year
Changes in comprehensive income
Changes that relate to current services
Contractual service margin recognized for services received
Risk adjustment recognized for the risk expired
Experience adjustments
Changes that relate to future services
Changes in estimates that do not adjust the contractual service margin
Changes in non-performance risk of reinsurers
Net expense from reinsurance contracts
Reinsurance finance income (expense)
Exchange rate differences
Total changes in comprehensive income
Cash flows
Amounts received
Total cash flows
Reinsurance contract assets, end of year
Year ended
Reinsurance contract assets, beginning of year
Changes in comprehensive income
Changes that relate to current services
Contractual service margin recognized for services received
Risk adjustment recognized for the risk expired
Experience adjustments
Changes that relate to future services
Changes in estimates that do not adjust the contractual service margin
Changes in non-performance risk of reinsurers
Net expense from reinsurance contracts
Reinsurance finance income (expense)
Exchange rate differences
Total changes in comprehensive income
Cash flows
Amounts received
Total cash flows
Reinsurance contract assets, end of year
Present value
of future
cash flows
December 31, 2023
Risk
adjustment
Contractual
Service
margin
2,173
84
12
-
-
(450)
439
1
(10)
67
45
102
(590)
(590)
1,685
-
(32)
-
(2)
-
(34)
3
2
(29)
-
-
55
(3)
-
-
-
-
(3)
-
-
(3)
-
-
9
December 31, 2022
Present value
of future
cash flows
Risk
adjustment
Contractual
Service
margin
2,957
135
18
-
-
(634)
547
2
(85)
(49)
(79)
(213)
(571)
(571)
2,173
-
(29)
-
5
-
(24)
(22)
(5)
(51)
-
-
84
(6)
-
-
-
-
(6)
-
-
(6)
-
-
12
Total
2,269
(3)
(32)
(450)
437
1
(47)
70
47
70
(590)
(590)
1,749
Total
3,110
(6)
(29)
(634)
552
2
(115)
(71)
(84)
(270)
(571)
(571)
2,269
64
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
11.3 Material accounting judgments, estimates and assumptions
Liability for incurred claims – Estimate of undiscounted future cash flows
The Company establishes claims liabilities to cover the estimated liability for the cash flows associated with incurred losses as at the
balance sheet date, including claims not yet reported and loss adjustment expenses incurred with respect to insurance contracts
underwritten and reinsurance contracts placed by the Company. The ultimate cost of claims liabilities is estimated by using generally
accepted standard actuarial techniques.
The main assumption underlying these techniques is that the 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, geographical area, as well as significant
business line and claim type. Catastrophic weather events are separately projected to reflect the fact that their development might
differ from historical losses while very large losses are typically left reserved at the face value of claims adjuster estimates.
Additional qualitative judgment is used to assess the extent to which past trends may not apply in the future (e.g., to reflect one-off
occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation,
judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) to
arrive at the estimated ultimate cost of claims that present the probability-weighted expected value outcome from the range of possible
outcomes, taking into account all the uncertainties involved.
A particular area of consideration during the year ended December 31, 2023 has been the continued elevated levels of inflation. 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 2024.
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 4.2 – Global economic environment).
Discount rates
The liability for incurred claims under the PAA and GMM and the liability for remaining coverage under the PAA, when onerous, and
GMM are calculated by discounting expected future cash flows at a risk-free rate, plus an illiquidity premium where applicable. Risk-
free rates are determined by reference to the yields of highly liquid sovereign securities in the currency of the insurance contracts.
The illiquidity premium is determined by reference to observable market rates of investment grade bonds that the Company believes
reflects the nature of the liabilities and are a suitable proxy for assessing the value of illiquidity.
Discount rates applied for discounting of future cash flows are listed below:
Table 11.7 – Yield curves used to discount cash flows for insurance and reinsurance contracts for major currencies
As at December 31,
1 year
3 years
5 years 10 years
1 year
3 years
5 years 10 years
2023
2022
CAD
USD
GBP
EUR
Periodic payment orders
4.9%
5.2%
5.0%
3.5%
4.0%
4.3%
4.7%
4.5%
3.2%
4.0%
4.2%
4.6%
4.4%
3.1%
4.0%
4.2%
4.7%
4.5%
3.2%
4.0%
5.0%
5.0%
4.9%
3.3%
4.0%
4.8%
4.9%
4.9%
3.6%
4.0%
4.6%
4.9%
5.0%
3.8%
4.0%
4.6%
5.0%
5.0%
3.9%
4.0%
INTACT FINANCIAL CORPORATION 65
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Risk adjustment
The risk adjustment is the compensation that the Company requires for bearing the uncertainty about the amount and timing of the
cash flows of groups of insurance contracts. It reflects an amount the Company would rationally pay to remove the uncertainty that
future cash flows will exceed the expected value amount.
The main non-financial risks considered in determining the risk adjustment are:
The level of uncertainty in the best estimate;
The variability of key inflation assumptions; and
•
•
• Possible economic and legislative changes.
The Company has estimated the risk adjustment based on a percentile (80% as at December 31, 2023 and 2022) of the loss
distribution of the Company’s economic capital model less the mean of the loss distribution. Percentile estimates for loss distribution
are highly uncertain. The loss distribution is estimated using standard statistical techniques in accordance with generally accepted
actuarial principles.
The main assumptions underlying these techniques are:
• Historical claims development can be used to generate the full range of potential outcomes; and
• Expert judgments to allow for the correlation between line of business and region.
Additional qualitative judgment is used to assess the extent to which there are events not included in the historical data.
Liability for remaining coverage under the PAA (when onerous) and GMM – Estimate of undiscounted future cash flows
The Company’s objective in estimating future cash flows is to determine the expected value of the full range of possible outcomes,
considering a range of scenarios which have commercial substance and give a good representation of possible outcomes. The cash
flows from each scenario are probability-weighted and discounted using current assumptions.
When estimating future cash flows, the Company includes all cash flows on a probability-weighted basis that are within the contract
boundary. The Company incorporates, in an unbiased way, all reasonable and supportable information available without undue cost
or effort about the amount, timing and uncertainty of those future cash flows.
Coverage units
Recognition of deferred profit in Net income through the amortization of the contractual service margin is dictated by coverage units
which quantify the amount of insurance service provided in any given period. In the context of retrospective reinsurance contracts and
acquired claims, the Company deems the expected settlement pattern of outstanding future cash flows to be the best representation
of service provided.
11.4 Sensitivity analysis
The liability for incurred claims’ sensitivity to certain key assumptions is outlined below. It is not possible to quantify the sensitivity to
certain assumptions such as legislative changes or uncertainty in the estimation process. The analysis is performed for possible
movements in the assumptions with all other assumptions held constant, showing the impact on Net income. Movements in these
assumptions may be non-linear and may be correlated with one another.
Table 11.8 – Sensitivity analysis (liability for incurred claims) – Impact on Net income
As at December 31,
Direct1
Net2
Direct1
Net2
2023
2022
Canada
UK&I3
US
Discount
Discount
Discount
Reserves
+5%
rate Reserves
+1%
+5%
rate Reserves
+1%
+5%
rate Reserves
+1%
+5%
Discount
rate
+1%
(557)
(501)
(105)
222
174
40
(508)
(301)
(81)
204
95
31
(546)
(466)
(100)
216
150
35
(495)
(270)
(72)
195
79
26
1 Represents the liability for incurred claims before net payables included in incurred claims and the reclass of claims reported under the GMM.
2 Represents the net liability for incurred claims before net payables included in incurred claims and the reclass of net claims reported under the GMM.
3 Excludes periodic payment orders. A change of +0.5% in the discount rate of the direct periodic payment orders would increase Net income by $37 million
and $35 million as at December 31, 2023 and 2022, respectively. A change of +0.5% in the discount rate of net periodic payment orders would increase
Net income by $20 million and $19 million as at December 31, 2023 and 2022, respectively.
66
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
11.5 Fair value of the net liability for incurred claims
The Company estimates that the fair value of its net liability for incurred claims approximates its carrying amount.
Table 11.9 – Carrying amount of the net liability for incurred claims
As at December 31,
Undiscounted value
Effect of time value of money
Undiscounted risk adjustment
Periodic payment orders2
Net liability for incurred claims before net
payables and claims reported under the GMM
Net payables included in incurred claims
Reclass of claims reported under the GMM3
2023
Direct
Ceded
27,065
(2,356)
1,106
417
26,232
692
(5,213)
4,560
(372)
217
186
4,591
467
(1,629)
2022 (Restated)1
Net
22,505
(1,984)
889
231
21,641
225
(3,584)
Direct
26,243
(2,419)
1,084
399
25,307
778
(6,646)
Ceded
4,707
(438)
266
181
Net
21,536
(1,981)
818
218
4,716
20,591
268
(2,100)
510
(4,546)
Net liability for incurred claims
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 The net periodic payment orders are net of the discount and risk adjustment of $346 million as at December 31, 2023 ($327 million as at
19,439
16,555
21,711
18,282
2,884
3,429
December 31, 2022).
3 Includes the acquired claims and retroactive reinsurance reclassifications from liability for incurred claims to liability for remaining coverage.
11.6 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 after reinsurance with subsequent developments during the
periods and together with cumulative payments to date.
INTACT FINANCIAL CORPORATION 67
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 11.10 – Prior-year claims development – net of reinsurance
As at December 31, 2023
Total 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Earlier
Accident year
Estimates of undiscounted net cumulative claims
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
7,949 7,254 6,828 5,021 4,752 4,184 4,090 3,504 3,025 2,843
7,598 6,492 4,713 4,645 4,090 3,942 3,542 2,922 2,772
6,059 4,589 4,585 4,102 3,911 3,547 2,957 2,765
4,396 4,481 4,146 3,910 3,609 2,979 2,782
4,408 4,093 3,925 3,655 2,999 2,794
4,065 3,914 3,669 3,013 2,782
3,879 3,609 3,004 2,776
3,574 2,945 2,761
2,976 2,722
2,729
Current estimate
Cumulative net claims paid to date
Undiscounted net claims
Effect of time value of money
Undiscounted risk adjustment
Periodic payment orders
7,949 7,598 6,059 4,396 4,408 4,065 3,879 3,574 2,976 2,729
(3,138) (3,274) (2,344) (3,000) (3,063) (3,227) (3,078) (2,707) (2,510)
22,505 7,949 4,460 2,785 2,052 1,408 1,002
(1,984)
889
231
652
496
269
219 1,213
Net liability for incurred claims before net
payables and claims reported under the GMM
Net payables included in incurred claims
Reclass of claims reported under the GMM1
21,641
225
(3,584)
Net liability for incurred claims (Table 11.9)
1 Includes the acquired claims and retroactive reinsurance reclassifications from liability for incurred claims to liability for remaining coverage.
18,282
The original reserve estimates are evaluated quarterly for redundancy or deficiency. The evaluation is based on actual payments in
full or partial settlement of claims and current estimates of claims liabilities for claims still open or claims still unreported.
To eliminate the distortion resulting from changes in foreign currency rates, all amounts denominated in currencies other than the
CAD have been translated into CAD using the exchange rate in effect as at December 31, 2023.
11.7 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 – Insurance risk
The Company principally underwrites automobile, home, as well as commercial P&C contracts to individuals and businesses in the
Canadian, UK&I and US insurance market. Refer to Note 32 – Segment information for more details. The adoption of IFRS 17 has
not changed the way the Company manages insurance risk.
Most of the insurance risk to which the Company is exposed is of a short-tail nature. Policies generally cover a 12-month period. The
following table presents the average duration of the net liability for incurred claims.
Table 12.1 – Average duration of the net liability for incurred claims (in years)1
As at December 31,
Canada
UK&I3
US
2023
2.0
2.5
2.1
2022
(Restated)2
1.8
2.6
2.1
1 Represents the net liability for incurred claims before net payables included in incurred claims and the reclass of net claims reported under the GMM.
2 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
3 Includes the duration of period payment orders of 19.6 years as at December 31, 2023 (19.3 years as at December 31, 2022).
68
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Insurance risk is the risk that a loss arises from the following reasons:
•
•
•
•
•
underwriting and pricing (Note 12.1);
fluctuation in the timing, frequency and severity of claims relative to expectations (Note 12.2);
large, unexpected losses arising from a single event such as a catastrophe (Note 12.3);
risk related to the liability for incurred claims (Note 12.4); and
inadequate reinsurance protection (Note 13.2).
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 a sufficient liability for incurred claims is 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 a liability for incurred claims to cover the estimated liability for the
payment of all losses, incurred with respect to insurance contracts underwritten by the Company.
The liability for incurred claims is the Company’s best estimate of its expected ultimate cost of resolution and administration of claims.
Expected claim cost inflation is considered when estimating the liability for incurred claims, thereby mitigating inflation risk. The
composition of the Company’s insurance risk, as well as the methods employed to mitigate risks, are described hereafter.
12.1 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 risk appetite statement approved by the Board of Directors 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 12.2 – 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
2023
2022 (Restated)1
Insurance
revenue2
Net liability
for incurred
claims3
Insurance
revenue2
Net liability
for incurred
claims3
64%
25%
11%
63%
28%
9%
64%
26%
10%
100%
100%
100%
26%
16%
22%
7%
18%
11%
31%
7%
25%
7%
21%
9%
26%
16%
22%
7%
19%
10%
65%
26%
9%
100%
34%
6%
25%
6%
20%
9%
100%
100%
100%
100%
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Excludes insurance revenue from acquired claims related to the RSA acquisition and assumed commissions.
3 Represents the net liability for incurred claims before net payables included in incurred claims and the reclass of net claims reported under the GMM.
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.
INTACT FINANCIAL CORPORATION 69
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 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.
12.2 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 an appropriate
liability for incurred claims is established and approved.
12.3 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, frequency and severity
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 mainly
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
13.1 – Company’s reinsurance net retention and coverage limits by nature of risk.
70
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
12.4 Liability for incurred claims risk
The principal assumption underlying the liability for incurred claims estimates is that the Company’s future claims development will
follow a similar pattern to past claims development experience. Liability for incurred claims 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 adjustment (refer to Note 11.3 – Material accounting judgments, estimates and assumptions for more details).
Refer to Note 11.4 – Sensitivity analysis for the liability for incurred claims’ sensitivity 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.
Note 13 – Reinsurance
13.1 Company’s reinsurance net retention and coverage limits by nature of risk
In the ordinary course of business, the Company reinsures certain risks with 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. The
following table shows the reinsurance retention and coverage limits for multi-risk events and catastrophes.
Table 13.1 – Company’s reinsurance net retention and coverage limits by nature of risk
As at 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
1 Excludes reinstatement premiums, tax impacts, and co-participations between the retention level and coverage limits.
2 Represents the ground up limits before co-participations and retention level.
2023
2022
250
6,400
150
1,300
125
1,600
200
7,200
125
1,225
75
1,350
Effective January 1, 2023, for Canadian events, the Company reduced its coverage limits to reflect the reduction in earthquake
exposure in British Columbia and increased its retention to reflect reinsurance market conditions. For US and UK events, the Company
increased its coverage limits to reflect changes in exposures including inflationary impacts.
INTACT FINANCIAL CORPORATION 71
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Effective January 1, 2024, the Company reduced its coverage limits for Canadian events from $6.4 billion to $5.4 billion reflecting the
reduction in earthquake exposure in British Columbia, while maintaining a consistent risk appetite. The Company maintained its
retention in Canada at $250 million. For US events, the Company maintained the same retention and coverage limit for 2024. For UK
events, the Company has increased its UK retention and coverage limits to £150 million and £2.1 billion, respectively, to reflect the
impact of the DLG brokered commercial lines acquisition.
The Company’s approach for setting limits in each country is consistent with prior years.
13.2 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, 2023 and 2022, 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, 2023 and 2022.
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.
When applicable, the Company obtains collateral to support reinsurance contract assets and reduce exposure to credit risk from
unregistered reinsurers in Canada, and from unauthorized reinsurers in the US and captive reinsurers in the UK&I, which amounted
to $417 million as at December 31, 2023 ($428 million as at December 31, 2022, restated to consider the revaluation of reinsurance
contract assets under IFRS 17). This collateral consists of cash, security agreements, and letters of credit and could be used should
these reinsurers be unable to meet their obligations.
72
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 14 – Goodwill and intangible assets
14.1 Summary of goodwill and intangible assets
Table 14.1 – Reconciliation of the carrying amount of goodwill and intangible assets.
Goodwill
Distribution
networks
Intangible assets
Customer
Relationships
and trade
names
Internally
developed
software
Total
Intangible
assets
Cost
Balance as at January 1, 2023
Business combinations (Note 5)
Acquisitions and costs capitalized
Disposals and write-off1
Exchange rate differences
Balance as at December 31, 2023
Accumulated amortization
Balance as at January 1, 2023
Amortization expense
Disposals and write-off
Exchange rate differences
Balance as at December 31, 2023
Net carrying amount
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
3,350
544
207
-
(16)
4,085
-
-
-
-
-
3,547
313
9
-
(22)
3,847
(443)
(132)
-
7
(568)
4,085
3,279
3,066
50
168
-
66
3,350
-
-
-
-
-
3,408
181
-
(117)
75
3,547
(309)
(127)
9
(16)
(443)
3,104
Net carrying amount
1 Mainly related to the UK Personal Lines exit. Refer to Note 5.2 – Disposals for more details.
3,350
1,105
53
84
-
4
1,246
(466)
(117)
-
(1)
(584)
662
1,031
-
95
(17)
(4)
1,105
(360)
(108)
3
(1)
(466)
639
1,560
17
385
(86)
12
1,888
(603)
(187)
8
-
(782)
1,106
1,321
5
310
(71)
(5)
1,560
(455)
(154)
12
(6)
(603)
957
6,212
383
478
(86)
(6)
6,981
(1,512)
(436)
8
6
(1,934)
5,047
5,760
186
405
(205)
66
6,212
(1,124)
(389)
24
(23)
(1,512)
4,700
Intangible assets under development amounted to $396 million as at December 31, 2023 ($361 million as at December 31, 2022).
These intangible assets are not subject to amortization but are tested for impairment on an annual basis.
INTACT FINANCIAL CORPORATION 73
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
14.2 Material 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.
In 2023, the DLG brokered commercial lines acquisition resulted in newly allocated goodwill to the UK&I CGU. Previously, there was
no goodwill and intangible assets with indefinite lives allocated to this CGU as the RSA acquisition in 2021 resulted in a bargain gain
and there were no intangible assets with indefinite lives. Refer to Note 5 – Business combinations and disposals for more details.
Table 14.2 – Allocation of goodwill and intangible assets with indefinite lives to the groups of CGUs
As at December 31,
Canada
UK&I
US
Goodwill
Intangible assets
2023
2,543
550
992
4,085
2022
2,336
-
1,014
3,350
2023
829
-
9
838
2022
829
-
9
838
b)
Impairment testing of goodwill and intangible assets with indefinite lives
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, 2023 and 2022.
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.
Table 14.3 – Key assumptions used (groups of CGUs)
Canada
US
Terminal growth rate
Pre-tax discount rate
2023
3.0%
3.0%
2022
2.5%
3.9%
2023
11.1%
10.8%
2022
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, 2023 and 2022.
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. For the UK&I CGU, since the DLG brokered
commercial lines acquisition completed in 2023 was recent, the related goodwill was already at fair value, as a result no imp airment
test was performed as at December 31, 2023
74
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 15 – Investments in associates and joint ventures
Table 15.1 – 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
Balance, end of year
Of which:
Associates
Joint ventures
2023
845
42
(39)
96
944
579
365
2022
760
31
(49)
103
845
448
397
During the year ended December 31, 2023, 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.
The Company had no significant contingent liabilities or capital commitments relating to these associates and joint ventures as at
December 31, 2023 and 2022.
Note 16 – Property and equipment
Table 16.1 – Net carrying amount of property and equipment
As at December 31,
Right-of-use assets1
Furniture and equipment
Leasehold improvements
Land and buildings
2023
493
120
116
70
799
2022
462
134
123
59
778
1 Right-of-use assets mainly related to real estate for which additions for the year ended December 31, 2023 amounted to $123 million ($89 million –
December 31, 2022). Total additions to right-of-use assets related to business combinations were $2 million for the year ended December 31, 2023 (nil –
December 31, 2022)
Note 17 – Other assets and other liabilities
17.1 Other assets
Table 17.1 – Components of other assets
As at December 31,
Other receivables and recoverables
Other investments2
Pension plans in a surplus position (Table 31.1)
Accrued investment income
Financial assets related to investments
Prepaids
Restricted funds
Other
2023
2022
(Restated)1
553
338
229
206
203
195
54
158
515
400
671
178
216
215
67
225
1,936
2,487
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Mainly includes preferred shares and private funds recorded at fair value based on information such as future cash flows, discount rates, projected
earnings multiples, multiples of broker commissions, or recent transactions, classified in Level 3 of the fair value hierarchy.
INTACT FINANCIAL CORPORATION 75
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
17.2 Other liabilities
Table 17.2 – Components of other liabilities
As at December 31,
Lease liabilities
Accrued salaries and related compensation
Accounts payable and accrued expenses
Pension plans in a deficit position and unfunded plans (Table 31.1)
Other payables to broker
Collaterals from third parties
Industry pool payables
Facility carrier payables
Premiums payable by brokers to insurers
Provisions2
Other post-employment benefits and other post-retirement benefits
Other
2023
2022
(Restated)1
660
535
417
228
188
154
133
132
116
93
85
263
622
513
435
176
153
230
151
117
107
85
85
265
3,004
2,939
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Provisions were mainly related to the RSA acquisition and include restructuring provisions of $19 million as at December 31, 2022 as well as other
provisions such as litigations and lease dilapidations and refurbishments.
Note 18 – Assets held for sale
18.1 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 19 – Debt outstanding for
more details.
76
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 19 – Debt outstanding
19.1 Summary of debt outstanding
Table 19.1 – Carrying amount of debt outstanding
Maturity
date
Initial
term
(years)
Fixed
rate
Coupon
(payment)
Principal
amount
Carrying amount (net of fees)
2023
2022
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
2022 US senior notes
Term loans (Refer to 19.2)
GBP tranche
GBP loan
Guaranteed subordinated
GBP notes (Refer to 19.4)
US bonds
Commercial paper
Credit facility
Other Debt
Nov. 2039
Jul. 2061
Jun. 2042
Mar. 2026
Jun. 2027
Mar. 2025
Dec. 2030
Dec. 2050
May 2024
May 2028
May 2053
Sep. 2054
Sep. 2032
30 6.40% May & Nov.
Jan. & Jul.
50 6.20%
30 5.16%
Jun. & Dec.
10 3.77% Mar. & Sep.
Jun. & Dec.
10 2.85%
5 3.69% Mar. & Sep.
Jun. & Dec.
Jun. & Dec.
3 1.21% May & Nov.
7 2.18% May & Nov.
32 3.77% May & Nov.
31 5.28% Mar. & Sep.
10 5.46% Mar. & Sep.
10 1.93%
30 2.95%
Feb. 2024
Oct. 2025
1
2
Oct. 2045
Oct. 2029
31 5.13%
Oct.
30 8.95% Apr. & Oct.
250
100
250
250
425
300
300
300
375
375
250
400
USD500
£100
£65
£120
USD9
May 2027
Various
Total debt outstanding before hybrid subordinated notes
Hybrid subordinated notes
Series 1
Total debt outstanding
Mar. 2081
60 4.13% Mar. & Sep.
250
248
99
249
250
424
299
299
298
375
374
248
396
655
169
110
214
16
105
-
6
4,834
247
5,081
248
99
249
249
424
299
299
298
374
373
248
-
669
-
-
285
17
135
2
7
4,275
247
4,522
The medium-term notes may be redeemed at the option of the issuer, in whole or in part at any time, at a redemption price equal to
the greater of the Government of Canada Yield at the date of redemption plus a margin or their par value.
Fair value of debt outstanding amounted to $5,004 million as at December 31, 2023 ($4,189 million as at December 31, 2022) 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, 2023 and 2022.
INTACT FINANCIAL CORPORATION 77
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
19.2 Financing issued in 2023
Series 14
Unsecured
Medium-Term
Notes
• On September 14, 2023, the Company completed an offering of $400 million principal amount of Series 14
unsecured medium-term notes through a private placement in Canada. These notes bear interest at an annual
rate of 5.276% until maturity on September 13, 2054, payable in semi-annual instalments, commencing on
March 14, 2024.
• The net proceeds received were used to partially fund the DLG brokered commercial lines acquisition. Refer
to Note 5 – Business combinations and disposals for more details.
Term loan
• On February 27, 2023, the Company entered into a 12-month agreement to issue a term loan in two tranches,
one being denominated in GBP for an amount of $164 million (£100 million) (the “GBP tranche”) and the other
in CAD for an amount of $130 million (the “CAD tranche”) (together the “Term loans”).
o The GBP tranche and the CAD tranche are bearing interest at a rate of SONIA plus 80 basis points (“bps”)
and CDOR plus 55 bps, respectively.
o The proceeds of the Term loans were used for the purpose of partially funding the execution of the UK
pension plans buy-in transaction. Refer to Note 31.6 – Additional information on UK DB pension plans
for more details.
o As at December 31, 2023, the CAD tranche was repaid in full using available excess cash.
o The Company designated the GBP tranche as a net investment hedge of its UK foreign operations.
o Subsequent to year end, on February 8, 2024, the GBP tranche was repaid in full using available
excess cash.
• On October 24, 2023, the Company entered into a 24-month term loan agreement for an amount of
$109 million (£65 million), bearing interest at a rate of SONIA + 70 bps (“the GBP loan”). The proceeds were
used to partially fund the DLG brokered commercial lines acquisition. Refer to Note 5 – Business
combinations and disposals for more details.
19.3 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.
2022 US
senior notes
(USD)
• On September 22, 2022, the Company completed an offering of $674 million (USD500 million) principal
amount of 2022 US senior 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 18 – Assets held for sale for more details.
78
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
19.4 Other financing
Redemption of guaranteed subordinated GBP notes
On June 6, 2023, the Company redeemed $67 million (£40 million) principal amount of the GBP notes ahead of the maturity date
using its commercial paper and available cash and cash equivalents. The redemption price was $65 million (£39 million), and the
notes had a carrying value of $72 million (£43 million). A gain on redemption of $7 million (£4 million) was recognized in Other finance
costs in Net income.
Credit facility
As at December 31, 2022, the Company had an unsecured revolving term credit facility of $1.5 billion. On October 19, 2023, the
balance available under this credit facility was increased from $1.5 billion to $1.8 billion and a new maturity date was set to
October 19, 2028. This increase was initiated to provide incremental liquidity. As at December 31, 2023, no amount was drawn under
this credit facility ($2 million as at December 31, 2022).
Type:
Prime loans
Base rate (Canada) advances
Bankers’ acceptances
SOFR advances
At a rate of:
Prime rate plus a margin
Base rate (Canada) plus a margin
Bankers’ acceptance rate plus a margin
SOFR rate plus a margin
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 18 – Assets held for sale for more details.
19.5 Movement in debt outstanding
Table 19.2 – Movements in debt outstanding
Years ended December 31,
Balance, beginning of year
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
2023
4,522
799
(32)
(198)
-
(10)
5,081
2022
5,229
1,258
(302)
(1,700)
43
(6)
4,522
INTACT FINANCIAL CORPORATION 79
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 20 – Share capital
20.1 Authorized
Authorized share capital consists of an unlimited number of common shares and preferred shares (“Class A Shares”).
20.2 Issued and outstanding
Table 20.1 – 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
Other equity
LRCN Series 1 Notes
Preferred shares and other equity
Share capital
2023
2022
Number
of shares
Carrying
amount
Number
of shares
178,320,868
8,099
175,256,968
Carrying
amount
7,542
10,000,000
10,000,000
6,000,000
6,000,000
10,000,000
6,000,000
6,000,000
54,000,000
n/a
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
6,000,000
244
245
147
147
245
147
147
1,322
54,000,000
1,322
297
1,619
9,718
n/a
-
1,322
8,864
Issued and outstanding Class A shares rank in priority to common shares with regards to payment of dividends.
Table 20.2 – Reconciliation of share capital
Year ended
Common shares
Number
of shares
Carrying
amount
December 31, 2023
Preferred shares
Class A shares
Other equity
Number
of shares
Carrying
amount
Number
of units
Carrying
amount
Balance, beginning of year
Issued
Repurchased and cancelled
175,256,968
3,065,900
(2,000)
7,542
557
-
54,000,000
-
-
Balance, end of year
178,320,868
8,099 54,000,000
1,322
-
-
1,322
n/a
n/a
n/a
n/a
-
297
-
297
Share
capital
Carrying
amount
8,864
854
-
9,718
December 31, 2022
Common shares
Number
of shares
Carrying
amount
Preferred shares
Class A shares
Number
of shares
Carrying
amount
Share
capital
Carrying
amount
176,081,958
-
(824,990)
n/a
7,576
-
(36)
2
48,000,000
6,000,000
-
-
175,256,968
7,542
54,000,000
1,175
147
-
-
1,322
8,751
147
(36)
2
8,864
Year ended
Balance, beginning of year
Issued
Repurchased and cancelled
Other
Balance, end of year
80
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
20.3 Financing issued in 2023
Common
shares
• On September 13, 2023, the Company issued 2,666,000 common shares at a price of $187.60 per common
share for gross proceeds of $500 million pursuant to a bought deal public offering in Canada, and a private
offering to qualified institutional buyers in the United States.
• On that same date, the Company issued another 399,900 common shares for additional gross proceeds of
$75 million following the exercise, in full, of an over-allotment option.
• Share issuance costs of $24 million ($18 million after tax) were accounted for as a reduction in common
shares on the Consolidated balance sheets.
•
$500 million of net proceeds from the issuance of common shares were used to partially fund the purchase
price of the DLG brokered commercial lines acquisition. Refer to Note 5 – Business combinations and
disposals for more details.
• The remaining $51 million of the net proceeds will be used for other general corporate purposes.
• On March 7, 2023, the Company issued $300 million of Limited Recourse Capital Notes Series 1
(“LRCN Series 1 Notes”) maturing on June 30, 2083. Holders of the LRCN Series 1 Notes are entitled to
receive semi-annual payments at a rate of 7.338% per annum until June 30, 2028. Thereafter, the yield will
reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.95%.
•
In connection with the issuance of the Notes, the Company issued 300,000 Non-Cumulative Rate Reset
Class A Shares, Series 12 (the "Series 12 Preferred Shares") which are held by a trustee of a newly formed
trust (the "Limited Recourse Trust") and which are eliminated from the Company’s consolidated financial
statements.
Other equity
• The net proceeds of $297 million are presented as equity instruments under Preferred shares and other equity.
Semi-annual payments are recorded as equity distributions, and, for tax purposes, are considered as interest.
•
In case of non-payment of interest on or the principal or redemption price of the LRCN Series 1 Notes when
due, the recourse of each holder of LRCN Series 1 Notes will be limited to that holder's proportionate share
of the Limited Recourse Trust's assets, which will consist of Series 12 Preferred Shares except in limited
circumstances.
• The net proceeds from the LRCN Series 1 Notes were used for the purpose of partially funding the execution
of the UK pension plans buy-in transaction. Refer to Note 31.6 – Additional information on UK DB pension
plans for more details.
20.4 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 21
– Non-controlling interests for more details.
INTACT FINANCIAL CORPORATION 81
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
20.5 Preferred share conversions and dividend rate reset
Series 7 Preferred Shares
On May 31, 2023, the Company announced that it did not intend to exercise its right to redeem the Company’s Non-cumulative Rate
Reset Class A Series 7 Preferred Shares (the “Series 7 Preferred Shares”) on June 30, 2023. Holders of Series 7 Preferred shares
could elect to convert all or any of their shares into Non-cumulative Floating Rate Class A Series 8 Preferred Shares (the “Series 8
Preferred Shares”) on a one-for-one basis on June 30, 2023. There were less Series 7 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 7 Preferred Shares.
As a result, no conversion took place and the dividend rate was reset on June 30, 2023 to 6.012%, which will prevail from and including
June 30, 2023 to but excluding June 30, 2028.
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.
20.6 Dividends declared and paid per share
Table 20.3 – Dividends declared and paid per share (in dollars)
Years ended December 31,
Common shares
Preferred shares
Series 1
Series 3
Series 5
Series 6
Series 7
Series 9
Series 11
2023
4.40
1.21
0.86
1.30
1.33
1.36
1.35
1.31
2022
4.00
0.85
0.86
1.30
1.33
1.23
1.35
1.04
Subsequent to year-end, on February 13, 2024, the Board of Directors approved the increase of the Company's quarterly dividend
by $0.11 to $1.21 per common share. On the same day, the Board of Directors approved the quarterly dividend for common and
preferred shares for the first quarter of 2024.
The payment of dividends on common shares is subject to the discretion of the Board of Directors of the Company.
82
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
The holders of record of the Company’s preferred shares are entitled to receive non-cumulative preferential cash dividends on a
quarterly basis, as and when declared by the Board of Directors of the Company.
• Series 1 Preferred Shares – The 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 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 for the five-year period from and including June 30, 2023 to but
excluding June 30, 2028 is 6.012% (4.90% from June 30, 2018 to June 29, 2023). 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.
20.7 Normal course issuer bid
On February 17, 2023, the Company renewed its NCIB to repurchase, for cancellation, up to 5,257,709 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 will be 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 at 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 13, 2024, the Board authorized, subject to TSX approval, 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, commencing
February 17, 2024.
The following table presents the summary of the common shares repurchased for cancellation under the NCIB.
Table 20.4 – NCIB
Years ended December 31,
Common shares repurchased for cancellation (in shares)
Average price (in dollars)
Total consideration paid
2023
2,000
193.33
-
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 nil and $114 million was charged to Retained earnings as at December 31, 2023 and
2022, respectively.
INTACT FINANCIAL CORPORATION 83
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 21 – Non-controlling interests
Table 21.1 – Non-controlling interests recognized in the consolidated balance sheet
As at December 31,
Preferred shares issued by RSA
Preferred shares
2023
285
2022
285
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 of Directors. As at December 31, 2023 and 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.
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. As a result, the Company
derecognized the related NCI on that date. 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. As a result, the Company derecognized the notes and 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 Other 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 19 – Debt
outstanding and Note 20 – Share capital for more details.
84
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 22 – Accumulated other comprehensive income (loss)
Table 22.1 – Components of AOCI
As at December 31,
FVTOCI securities2
Available-for-sale securities3
Translation of foreign operations, net of hedges
Other
2023
(338)
-
17
-
(321)
2022
(Restated)1
-
(1,124)
(14)
47
(1,091)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Not applicable as at December 31, 2022, as related to IFRS 9 – Financial instruments. Refer to Note 2 – Adoption of new accounting standards.
3 Not applicable as at December 31, 2023, as related to IAS 39 – Financial instruments: recognition and measurement. Refer to Note 2 – Adoption of
new accounting standards.
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.
INTACT FINANCIAL CORPORATION 85
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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, 2023 and 2022, each of the Company’s regulated P&C insurance subsidiaries was in compliance with regulatory
capital requirements.
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 Insurers Act.
• 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.
In Canada, where the regulatory capital requirements were impacted by IFRS 17 changes, the transition to the new standard did not
have a significant impact on the Company’s regulatory capital position. In other jurisdictions where the Company is regulated, the
regulatory capital calculations are independent of IFRS 17, therefore there was no impact upon transition. The new standard did not
change the Company’s overall capital framework and how it manages its capital.
Note 24 – Net investment return and net insurance financial result
Table 24.1 – Net investment return and net insurance financial result
Years ended December 31,
Net investment income
Net gains (losses) on investment portfolio
Net investment return
Net insurance financial result
Net investment return and net insurance financial results
2023
(IFRS 9)
2022
(IAS 39)
1,346
249
1,595
(894)
701
931
(326)
605
439
1,044
86
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 24.2 – Net investment income
Years ended December 31,
Interest income calculated using the effective interest method:
Debt securities classified as FVTOCI1
Debt securities classified as AFS2
Loans and cash and cash equivalents
Interest and similar income on securities designated or classified as FVTPL
Interest income
Dividend income (expense) from:
Common shares, net
Classified as AFS2
Classified as FVTPL
Preferred shares, net
Designated as FVTOCI1
Classified as AFS2
Classified as FVTPL
Other investments
Dividend income
Investment property rental income
Investment income
Expense
2023
(IFRS 9)
2022
(IAS 39)
493
-
107
438
1,038
-
242
63
-
22
-
327
23
1,388
(42)
1,346
-
351
64
223
638
140
81
-
83
-
1
305
23
966
(35)
931
1 Not applicable for the year ended December 31, 2022, as related to IFRS 9 – Financial instruments. Refer to Note 2 – Adoption of new accounting
standards.
2 Not applicable for the year ended December 31, 2023, as related to IAS 39 – Financial instruments: recognition and measurement. Refer to Note 2 –
Adoption of new accounting standards.
Table 24.3 – Net gains (losses) on investment portfolio
Years ended December 31,
Portfolios
Net gains (losses) from:
Financial instruments:
Classified or designated as FVTOCI1
Classified as AFS2
Designated as FVTPL
Classified as FVTPL
Derivatives3:
Swap agreements
Forwards and futures
Embedded derivatives
Investment property
Net foreign currency gains (losses)
ECL expense1
Impairment losses from common shares2
Fixed
income
2023 (IFRS 9)
Equity and
property
Fixed
income
2022 (IAS 39)
Equity and
property
Total
(18)
-
313
13
308
-
19
19
-
-
(96)
(4)
-
-
-
-
112
112
(19)
(57)
(76)
-
(14)
-
-
-
(18)
-
313
125
420
(19)
(38)
(57)
-
(14)
(96)
(4)
-
-
(69)
(862)
-
(931)
-
20
20
-
-
177
-
-
-
451
(35)
-
416
38
(17)
21
71
(17)
-
-
(83)
Total
-
382
(897)
-
(515)
38
3
41
71
(17)
177
-
(83)
(326)
1 Not applicable for the year ended December 31, 2022, as related to IFRS 9 – Financial instruments. Refer to Note 2 – Adoption of new accounting
(734)
249
227
408
22
standards.
2 Not applicable for the year ended December 31, 2023, as related to IAS 39 – Financial instruments: recognition and measurement. Refer to Note 2 –
Adoption of new accounting standards.
3 Excluding foreign currency contracts, which are recognized in Net foreign currency gains (losses) on investments.
INTACT FINANCIAL CORPORATION 87
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 24.4 – Net insurance financial result
Years ended December 31,
Change in the carrying amount of insurance contracts due to:
Unwind of discount
Changes in discount rates and other financial assumptions
Net foreign currency gains (losses)
Insurance finance income (expense)
Change in the carrying amount of reinsurance contracts due to:
Unwind of discount
Changes in discount rates and other financial assumptions
Net foreign currency gains (losses)
Reinsurance finance income (expense)
2023
2022
(1,036)
(179)
124
(1,091)
204
23
(30)
197
(894)
(448)
1,184
(190)
546
80
(222)
35
(107)
439
24.1 Material accounting judgments, estimates and assumptions
Under IFRS 9
The ECL impairment model applies only to financial assets classified as amortized cost and debt securities classified as FVTOCI and
is forward looking. Refer to Note 3.4 h) – Impairment of financial assets other than those classified or designated as FVTPL
under IFRS 9 for more details.
Under IAS 39
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. Refer to Table 3.14 – Objective evidence of impairment for equity
impairment model.
Note 25 – Other net gains (losses)
Table 25.1 – Components of other net gains (losses)
Years ended December 31,
Gain on sale of businesses1
Currency derivative hedges related to acquisitions (Note 8.3)
Purchase price
Net investment
Other net foreign currency gains (losses)
Other2, 3
2023
-
(20)
6
(8)
72
50
2022
421
-
-
18
38
477
1 Related to the sale of the Codan DK business to Alm. Brand completed on May 2, 2022. Refer to Note 18.1 – Codan DK for more details.
2 Mainly related to realized gains on broker transactions recognized in 2023.
3 Includes an unrealized gain of $41 million recognized in 2022 related to certain venture investments remeasured at fair value and 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.
88
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 26 – Expense by nature
Table 26.1 – Expense by nature
Year ended December 31, 2023
Claims and adjustment expenses
Risk adjustment
Losses on onerous contracts1
Commissions
Premium taxes and levies
Allocated indirect expenses2
Amortization of acquired intangible assets3
Administrative and other expenses
Represented by:
Insurance service expense (Table 11.3)
Other expense (Table 26.2)
Year ended December 31, 2022
Claims and adjustment expenses
Risk adjustment
Losses on onerous contracts1
Commissions
Premium taxes and levies
Allocated indirect expenses2
Amortization of acquired intangible assets3
Administrative and other expenses
Represented by:
Insurance service expense (Table 11.3)
Other expense (Table 26.2)
Amortization of
insurance
acquisition
cash flows
Other
insurance
service
expense
Other
expenses
-
-
-
2,857
545
1,766
-
-
5,168
5,168
-
5,168
15,437
49
133
256
97
1,444
-
-
17,416
17,416
-
17,416
-
-
-
-
-
415
249
626
1,290
-
1,290
1,290
Amortization of
insurance
acquisition
cash flows
Other
insurance
service
expense
Other
expenses
-
-
-
2,752
545
1,536
-
-
4,833
4,833
-
4,833
14,699
62
1,414
289
97
1,356
-
-
17,917
17,917
-
17,917
-
-
-
-
-
442
235
622
1,299
-
1,299
1,299
Total
15,437
49
133
3,113
642
3,625
249
626
23,874
22,584
1,290
23,874
Total
14,699
62
1,414
3,041
642
3,334
235
622
24,049
22,750
1,299
24,049
1 Includes the initial recognition of losses on onerous contracts, any subsequent reversals, and the amortization of the loss component. Mainly related to
acquired claims from the RSA acquisition which amounted to $216 million for the year-ended December 31, 2023 ($1,360 million – December 31, 2022).
The remaining amount is mainly due to certain groups of insurance contracts in the UK&I.
2 Mainly includes salaries, rent and technology costs.
3 Includes the amortization of acquired distribution networks, customer relationships and trade names.
Table 26.2 – Other income and expense
Years ended December 31,
Other income1
Other expense (Table 26.1)
2023
663
(1,290)
2022
610
(1,299)
Other income and expense
1 Mainly includes commission revenues received from external insurance providers by consolidated brokers and revenues related to supply
(627)
(689)
chain operations.
INTACT FINANCIAL CORPORATION 89
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 27 – Acquisition, integration and restructuring costs
27.1 Acquisition, integration and restructuring costs
Acquisition costs include professional fees and stamp duties related to the closing of acquisitions. 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, including impairment expenses, and expenses
related to the implementation of significant new accounting standards.
Table 27.1 – Acquisition, integration and restructuring costs
Years ended December 31,
Acquisition costs
Integration costs
Restructuring and other costs
Note 28 – Income taxes
28.1 Income tax expense recognized in Net income
Table 28.1 – 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
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2023
24
231
248
503
2022
-
294
59
353
2023
2022
(Restated)1
529
17
(60)
(13)
473
546
(2)
17
(4)
557
90
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
28.2 Effective income tax rate
The effective income tax rates are different from the combined Canadian federal and provincial statutory income tax rates. The
Consolidated statements of comprehensive income contain items that are non-taxable or non-deductible for income tax purposes,
which cause the income tax expense to differ from what it would have been if based on statutory tax rates.
The following table presents the reconciliation of the effective income tax rate to the income tax expense calculated at statutory
tax rates.
Table 28.2 – Effective income tax rate reconciliation
Years ended December 31,
Statutory tax rate
Increase (decrease) in income tax rates resulting from:
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
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions
Non-deductible expenses
Other
Effective income tax rate
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
28.3 Components of deferred tax assets and liabilities
Table 28.3 – Components of deferred tax assets and liabilities
2023
25.9%
(0.5)%
(4.8)%
(1.5)%
2.8%
3.0%
0.5%
0.8%
26.2%
2022
(Restated)1
25.9%
(3.8)%
(1.3)%
(0.9)%
(1.0)%
(0.6)%
0.4%
(0.2)%
18.5%
Balance sheet
Asset (liability)
Comprehensive income
Expense (benefit)
As at December 31, / Years ended December 31,
Investments
Property and equipment
Intangible assets
Other assets
Losses available for carry forward
Financing costs
Insurance and reinsurance contracts
Accrued liabilities
DB pension plans
Other liabilities
2023
118
22
(873)
-
326
29
5
335
159
(36)
2022
(Restated)1
191
50
(854)
-
214
38
(142)
455
(17)
(18)
Net deferred tax asset (liability) / expense (benefit)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
85
(83)
2023
76
31
(50)
(3)
(111)
16
(148)
137
(175)
20
(207)
2022
(Restated)1
(255)
(15)
(33)
2
(13)
19
130
(63)
49
9
(170)
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, 2023 and 2022, no deferred tax liability has been recognized on the temporary
differences of $811 million ($614 million as at December 31, 2022) associated with investments in subsidiaries and associates.
INTACT FINANCIAL CORPORATION 91
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
28.4 Movement in the net deferred tax asset (liability)
Table 28.4 – Movement in the net deferred tax asset (liability)
Years ended December 31,
Balance, beginning of year
Impact of the adoption of IFRS 17 and IFRS 9
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)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2023
(83)
n/a
(72)
73
134
21
12
85
811
(726)
85
2022
(Restated)1
(114)
(136)
(17)
(13)
183
16
(2)
(83)
722
(805)
(83)
28.5 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, 2023 and 2022.
Table 28.5 – Unused tax losses and tax credits
As at December 31,
Total Recognized Expiry date
Total Recognized Expiry date
2023
2022 (Restated)1
Unused net operating losses:
US
Canada
UK
Ireland
Other jurisdictions
Unused tax credits:
US
Canada
131
693
3,160
539
111
27
9
2024-2036
131
684
2038-2043
221 No expiry date
179 No expiry date
29 No expiry date
27
-
2030-2036
2038-2042
160
327
2,964
540
117
28
6
Unused allowable capital losses:
Canada
Ireland
-
1
2,151
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
- No expiry date
- No expiry date
- No expiry date
1
1
2,102
UK
2024-2036
160
321
2037-2042
120 No expiry date
202 No expiry date
13 No expiry date
28
-
2030-2036
2038-2041
- 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 $949 million as at
December 31, 2023 ($400 million as at December 31, 2022), 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.
92
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
28.6 Material 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.
28.7 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.
28.8 Tax legislative changes
Pillar two
In October 2021, various countries and jurisdictions, including Canada, UK, and Ireland, agreed to implement the Organization for
Economic Co-operation and Development’s Pillar Two rules. The proposed rules are designed to ensure that large multinational
enterprises pay a minimum effective corporate tax rate (currently agreed upon at 15%) on the income arising in each jurisdiction
where they operate.
In May 2023, the IASB issued International Tax Reform—Pillar Two Model Rules, which amended IAS 12, for fiscal years beginning
as of December 31, 2023. The amendments include a temporary exception from recognizing and disclosing deferred tax assets and
liabilities related to Pillar Two income taxes. This exception will allow entities time to assess the implications of the new rules and to
avoid diverse interpretations of IAS 12 which could result in inconsistent applications until the IASB can complete further work. The
Company has applied this exception in jurisdictions in which the rules have been enacted and/or substantially enacted.
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company operates and the
legislation will be effective beginning January 1, 2024. The Company is in scope of the enacted or substantively enacted legislation
and has performed an assessment of its potential exposure to Pillar Two income taxes based on the most recent tax filings, country-
by-country reporting, and financial statements for its subsidiaries impacted by these rules. Based on the assessment, the Pillar Two
effective tax rates in most of the jurisdictions in which the Company operates are above 15%. However, there are a limited number of
jurisdictions where the transitional safe harbour relief does not apply, and the Pillar Two effective tax rate is below 15%. The Company
does not expect a material exposure to Pillar Two income taxes in those jurisdictions.
INTACT FINANCIAL CORPORATION 93
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 29 – 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, 2023 and 2022,
therefore, diluted EPS was the same as basic EPS.
Table 29.1 – 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)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
Note 30 – Share-based payments
30.1 Long Term incentive plan
a) Outstanding LTIP units and fair value at grant date
Table 30.1 – Outstanding units and weighted-average fair value at grant date by performance cycle
2023
1,316
(84)
1,232
176.2
6.99
2022
(Restated)1
2,454
(60)
2,394
175.6
13.63
2023
Weighted-
average fair
value at
grant date
(in $)
Number
of units
-
-
680,077
606,376
364,315
-
-
149.17
165.01
198.74
1,650,768
166.05
Amount
(in millions
of $)
Number
of units
2022
Weighted-
average fair
value at
grant date
(in $)
Amount
(in millions
of $)
-
-
102
100
72
274
66,631
477,072
628,811
561,189
-
1,733,703
103.88
136.06
149.17
165.01
-
149.07
7
65
94
92
-
258
2023
(in units)
1,733,703
389,684
132,910
(605,529)
2022
(in units)
1,509,976
438,495
384,801
(599,569)
1,650,768
1,733,703
As at December 31,
Performance cycles
2017 – 2022
2020 – 2022
2021 – 2023
2022 – 2024
2023 – 2025
b) Movements in LTIP units
Table 30.2 – 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
94
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 30.3 – LTIP expense recognized in Net income
Years ended December 31,
Cash-settled plans
Equity-settled plans
30.2 Employee share purchase plan
a) Movements in restricted common shares
Table 30.4 – Movements in restricted common shares
Years ended December 31,
Outstanding, beginning of year
Accrued
Awarded and vested
Forfeited
Outstanding, end of year
2023
19
75
94
2022
29
100
129
2023
(in units)
114,637
124,318
(113,648)
(2,604)
122,703
2022
(in units)
113,728
115,925
(111,690)
(3,326)
114,637
b) ESPP expense recognized in Net income
The ESPP is accounted for as an equity-settled plan. For the year ended December 31, 2023, the ESPP expense was $22 million
($19 million – December 31, 2022).
30.3 Deferred share unit
The DSU is accounted for as a cash-settled plan. For the year ended December 31, 2023, the expense was $3 million ($7 million –
December 31, 2022). The DSU provision amounted to $29 million as at December 31, 2023 ($26 million as at December 31, 2022).
30.4 Executive stock option plan
The Company maintains an ESOP for certain key executive employees under which, from time-to-time, stock options and SARs may
be granted.
As at December 31, 2023 and 2022, 1,430,181 common shares were reserved for issuance under the ESOP and 830,166 stock
options were issued with an exercise price of $161.67 and a maturity date of June 1, 2031. No options were issued during the years
ended December 31, 2023 and 2022.
The ESOP is accounted for as an equity-settled plan. For the year ended December 31, 2023, the ESOP expense was $4 million
($4 million – December 31, 2022).
INTACT FINANCIAL CORPORATION 95
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
30.5 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 30.5 – 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
2023
128
88
40
31
2022
112
66
46
32
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 31 – Employee future benefits
31.1 Overview of 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, 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 the 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 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 that
has delegated certain of its responsibilities to the Company, 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.
96
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.
c) De-risking of DB pension plans
As part of its de-risking strategy, the Company entered into annuity buy-in insurance contracts for its two major UK DB pension plans
(the “UK buy-in transaction”) and most of its Canadian DB pension plans. Refer to Note 31.6 – Additional information on UK DB
pension plans, Note 31.7 – Additional information on Canadian DB pension plans and Note 31.9 – Risk management and
investment strategy for more details.
31.2 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 31.1 – 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 17.1)
Other liabilities – plans in a deficit position
and unfunded plans (Table 17.2)
Pension plans
UK&I
(9,327)
9,332
(3)
2
40
(38)
2
2023
Canada
(3,272)
3,276
(5)
(1)
Total
(12,599)
12,608
(8)
1
189
(190)
(1)
229
(228)
1
UK&I
(8,939)
9,480
(180)
361
368
(7)
361
2022
Canada
(2,898)
3,040
(8)
134
303
(169)
134
Total
(11,837)
12,520
(188)
495
671
(176)
495
Funded status – funded plans
1 The weighted average duration of the DB obligation for the UK plans was 13.1 years (13.6 years as at December 31, 2022) and of the Canada plans
102%
100%
106%
111%
106%
107%
was 14.6 years as at December 31, 2023 (14.3 years as at December 31, 2022).
2 Includes a 35% authorized surplus payments charge related to certain 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 Company makes contributions to the DB pension plans to secure the benefits. The amount and timing of the Company’s
contributions are determined in accordance with applicable pension and tax legislation following the advice of an actuary. The
Company must contribute the excess of the total required funding over the members’ contributions. Under the provisions of the pension
plans in Canada, members’ contribution rates vary according to their choice of benefit accrual rate, which they may change annually.
Required contributions by the Company 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.
INTACT FINANCIAL CORPORATION 97
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
a) UK 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, in conjunction with the triennial funding valuations.
The triennial funding valuations are used to determine future funding, including funding to eliminate any funding deficit. Since the UK plans
are closed to future accruals, contributions that are made are strictly with respect to past service deficiencies.
The effective date of the most recent valuations of the main UK plans was March 31, 2021. At that date, 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 agreed
on funding plans to eliminate the funding deficits by 2025. In addition, the funding commitments that had been 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
• Parental guarantees of the obligations by the Company.
As part of its funding arrangements in place prior to the UK buy-in transaction on February 27, 2023, the Company paid its last annual
contribution of $123 million (£75 million) plus expenses and regulatory levies during the year ended December 31, 2023. As it was agreed
with the Trustees of the UK plans, the Company will not be required to make any additional annual mandatory funding contribution but will
continue to provide a parental guarantee of the obligations.
The Company is still required to make contributions to the main UK DB pension plans to meet outstanding deferred annuity premium
obligations, as well as ongoing expenses and regulatory levies. These contributions are expected to be approximately $76 million (£45 million)
for the year ending December 31, 2024. Refer to Note 31.6 – Additional information on UK DB pension plans for more details.
The next required funding valuation is as at March 31, 2024.
b) Canadian DB pension plans
Each plan is generally subject to triennial valuations, which are used to determine the future funding, including funding to eliminate
any deficit. The effective date of the most recent valuations of the main Canadian DB pension plans was December 31, 2022. The
next required funding valuation is as at December 31, 2025, but the Company has the option to perform a new valuation at an earlier
date. The Company’s liquidity risk with regards to these pension plans is low, as the Company has a high proportion of quality liquid
assets and sufficient inflows from contributions and buy-in insurance contracts to cover a substantial portion of the benefit payments.
Indeed, a large portion of the invested assets is held in highly liquid federal and provincial government debt to protect against any
unanticipated large cash requirements.
The Company had a contribution holiday in 2023 and based on the latest projections of the financial position of the plans the
contribution holiday is expected to continue in 2024. As a result, the Company does not expect to make cash contributions to the
Canadian DB pension plans in 2024.
98
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.3 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 31.2 – Movement in the DB obligation and fair value of plan assets
Year ended December 31, 2023
Balance, beginning of year
Current service cost
Net interest revenue (expense)
Other
Total benefit (expense) recognized in Net income
Change in discount rate
Changes in other financial assumptions1
Changes in plan experience
Changes in demographic assumptions
Actual return on plan assets
Annuity buy-in insurance contracts2
Other net surplus remeasurements2
Net actuarial gains (losses) recognized in OCI
Employee contributions
Employer contributions
Benefit payments
Exchange rate differences
Pension plans
DB obligation
Fair value of
plan assets
Other net
surplus
remeasure-
ment
Net DB asset
(liability)
(11,837)
(49)
(585)
(1)
(635)
(621)
117
(83)
173
-
-
-
(414)
(45)
-
617
(285)
12,520
-
657
(23)
634
-
-
-
-
115
(1,404)
-
(1,289)
45
1,027
(617)
288
(188)
-
-
-
-
-
-
-
-
-
-
181
181
-
-
-
(1)
495
(49)
72
(24)
(1)
(621)
117
(83)
173
115
(1,404)
181
(1,522)
-
1,027
-
2
Balance, end of year
1 Changes in other financial assumptions are mainly related to inflation rate.
2 The UK buy-in transaction completed on February 27, 2023 resulted in a net impact of $1,195 million (£727 million), composed of a remeasurement loss
on plan assets of $1,404 million (£854 million) included in annuity buy-in insurance contracts and the derecognition of a tax expense on surplus of
$209 million (£127 million) included in other net surplus remeasurements. Refer to Note 31.6 – Additional information on UK DB pension plans for
more details.
(12,599)
12,608
(8)
1
INTACT FINANCIAL CORPORATION 99
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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
Changes in other financial assumptions1
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
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
19,830
-
384
(20)
364
-
-
-
-
(6,503)
-
(6,503)
43
228
(636)
(806)
(459)
-
-
-
-
-
-
-
-
-
238
238
-
-
-
33
802
(87)
23
(20)
(84)
5,980
191
(336)
41
(6,503)
238
(389)
-
228
-
(62)
495
Balance, end of year
1 Changes in other financial assumptions are mainly related to inflation rate.
(11,837)
12,520
(188)
31.4 Net actuarial gains (losses) recognized in OCI
Table 31.3 – Net actuarial gains (losses) recognized in OCI
Years ended December 31,
Pension plans (Table 31.2)
Other post-retirement benefits
Actuarial gains (losses) on employee future benefits, net of other surplus remeasurement
2023
(1,522)
(4)
(1,526)
2022
(389)
39
(350)
100
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.5 Composition of pension plan assets
The pension plan assets were mainly composed of annuity buy-in insurance contracts as at December 31, 2023 and securities from
the government and financial sectors as at December 31, 2022. The change in composition in the UK&I pension plans was due to the
UK buy-in transaction completed during the year ended December 31, 2023. Refer to Note 31.6 – Additional information on UK
DB pension plans for more details.
Table 31.4 – Composition of fair value of pension plan assets by quoted and unquoted
As at December 31, 2023
Cash and cash equivalents
Debt securities1
Government
Non-government
Debt securities
Annuity buy-in insurance contracts
Common shares
Derivative financial instruments
Property
Other
Securities sold under repurchase agreements
Total investments
Deferred annuity premium
Total assets
As at December 31, 2022
Cash and cash equivalents
Debt securities1
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
UK&I
Canada
Total % of total
Total
quoted
Total
unquoted
Pension plans
45
95
29
124
9,188
25
(7)
2
135
-
9,512
(180)
9,332
UK&I
2,091
6,626
2,915
9,541
43
37
(30)
690
453
-
12,825
(3,345)
(1)
837
708
1,545
1,035
857
1
-
-
(161)
3,276
-
3,276
44
932
737
1,669
10,223
882
(6)
2
135
(161)
12,788
(180)
12,608
-%
7%
6%
13%
81%
7%
-%
-%
1%
(1)%
101%
(1)%
100%
45
932
600
1,532
-
637
-
2
-
-
2,216
-
2,216
(1)
-
137
137
10,223
245
(6)
-
135
(161)
10,572
(180)
10,392
Pension plans
Canada
Total % of total
Total
quoted
Total
unquoted
3
2,094
7,452
3,529
10,981
1,064
842
(39)
690
453
(220)
826
614
1,440
1,021
805
(9)
-
-
(220)
3,040
-
17%
60%
28%
88%
8%
7%
-%
6%
3%
(2)%
2,055
7,452
2,125
9,577
-
616
-
2
-
-
39
-
1,404
1,404
1,064
226
(39)
688
453
(220)
3,615
(3,345)
270
15,865
(3,345)
127%
(27)%
12,250
-
Total assets
1 The weighted average duration of debt securities was 15.8 years as at December 31, 2023 (16.1 years as at December 31, 2022).
12,520
100%
9,480
3,040
12,250
INTACT FINANCIAL CORPORATION 101
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.6 Additional information on UK DB pension plans
Purchase of annuity buy-in insurance contracts
On February 27, 2023, the Company announced that the Trustees of its two major UK DB pension plans (the “UK plans”) entered into
an agreement with Pension Insurance Corporation plc (“PIC”), a specialist insurer of DB pension plans, to purchase annuity buy-in
insurance contracts (the “buy-ins”), as part of their de-risking strategy. The buy-in agreement transferred the remaining economic and
demographic risks associated with the UK plans to PIC and removed the volatility in relation to the UK plans from the Company’s
consolidated balance sheet. The main risks that the Company retains are the counterparty risk and the market risk on the assets
remaining in the UK plans described below.
At the transaction date, the UK plans transferred the majority of their assets and an upfront contribution of $791 million (£481 million)
to PIC. Of the total buy-in premium of $10.4 billion (£6.3 billion), an amount of $904 million (£550 million) was deferred and will be
paid through the sale of certain less liquid assets that were initially retained by the UK plans, but were liquidated by the end of 2023.
During the year ended December 31, 2023, the UK plans paid $759 million (£457 million) of the deferred annuity premium. The
Company has committed to the UK plans to fund any shortfall in the deferred annuity premium obligation resulting from the liquidation
of the assets. In addition, the UK plans retained longevity swaps that were already in place. Refer to Asset and longevity swaps
below for more details.
The buy-in comprised various contracts which were considered in aggregate as one single contract because they form a structure
designed to collectively match the exact amount and timing of all the benefits payable by the UK plans. The Company was not legally
relieved of the primary responsibility for the obligation, and the benefit payments continue to be payable by the UK plans. The contracts
provide the option to convert the buy-ins into individual policies which would transfer the UK plan assets and obligation to PIC (known
as a “buy-out”). While this course of action may be considered in the future, a separate decision would be required, and certain
significant conditions would need to be met before any buy-out could be executed. Consequently, the transaction was considered a
buy-in as opposed to a buy-out under IAS 19. As a result, an initial actuarial loss of $1,195 million (£727 million) was recognized in
OCI during the year ended December 31, 2023. The fair value of annuity buy-in insurance contracts subsequently fluctuates based
on changes in the value of the associated DB obligation.
The UK buy-in transaction was funded through the issuance of short-term loans for an amount of $294 million, issuing LRCN Series 1
Notes in an amount of $300 million and excess capital held by the Company. Refer to Note 19.2 – Financing issued in 2023 and
Note 20.3 – Financing issued in 2023, respectively.
Asset and longevity swaps
In 2009, the UK DB pension plans had entered into an arrangement that provided coverage against longevity risk for 55% of the
retirement obligations relating to pensions in payment from the UK plans at that time. The arrangement provided for reimbursement
of the covered pension obligations in return for the contractual return receivable on a portfolio made up of quoted government debt
which was offset by asset swaps and longevity swaps held by the pension funds. On the UK buy-in transaction date, the portfolio and
asset swaps were novated to PIC and the longevity swaps remained in place as plan assets of the UK plans. In combination with the
other buy-in insurance policies purchased from PIC, these longevity swaps were accounted for as qualifying insurance policies at the
UK buy-in transaction date, based on the value of the associated DB obligation under IAS 19.
Funding arrangement
During the year ended December 31, 2023, the Company contributed a total of $1,003 million (£610 million) to the UK plans, including
the annual contribution and upfront contribution to PIC.
Other net surplus remeasurement
Prior to the UK buy-in transaction, the net DB asset (liability) of the UK plans was presented net of a 35% tax expense of an authorized
return of surplus, which was classified with Other net surplus remeasurements. Since the surplus of the UK plans was derecognized
through the UK buy-in transaction, the 35% tax provision totaling $209 million (£127 million) has also been derecognized through OCI
during the year ended December 31, 2023.
102
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
31.7 Additional information on Canadian DB pension plans
Purchase of annuity buy-in insurance contracts in Canada in 2022
During the year ended December 31, 2022, the Company purchased qualifying annuity buy-in insurance contracts totalling
$422 million on behalf of certain Canadian DB pension plans, as part of its de-risking strategy. The resulting actuarial loss of
$35 million 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.
31.8 Material 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 were 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 31.5 – 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)1,2
Rate of inflation (RPI)
Rate of increase in pensions3
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)1
Rate of inflation (RPI)
Rate of increase in pensions3
1 As at December 31, 2022: 6.51% for 2023, 5.00% for 2024, 3.00% for 2025, and 2.32% per year thereafter for Canada.
2 As at December 31, 2023: 4.00% for 2024, 3.00% for 2025, and 1.85% per year thereafter for Canada.
3 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%.
3.44%
3.32%
2.32%
n/a
n/a
n/a
n/a
2.46%
3.11%
2.96%
n/a
n/a
2.71%
3.35%
3.14%
2023
2022
UK&I
Canada
UK&I
Canada
4.54%
4.64%
4.86%
5.27%
n/a
n/a
2.45%
3.05%
2.91%
2.98%
2.85%
1.85%
n/a
n/a
n/a
n/a
2.46%
3.11%
2.96%
3.44%
3.32%
2.32%
n/a
n/a
2023
2022
UK&I
Canada
UK&I
Canada
n/a
4.86%
5.26%
5.22%
n/a
1.84%
3.28%
2.89%
2.75%
3.07%
2.07%
n/a
n/a
INTACT FINANCIAL CORPORATION 103
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 31.6 – Future mortality assumptions
As at December 31,
Life expectancy (in years) for pensioners at the age of 65:
Male
Female
2023
2022
UK&I
Canada
UK&I
Canada
22.1
23.6
22.8
24.4
22.2
23.8
22.8
24.3
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 2022 tables with a long-
term improvement rate of 1.25%.
The rate of compensation increase for the Canadian DB plans was based on management expectation for the next year, and on
inflation and long-term expectations of wage salary increase beyond the next year. 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 31.7 – 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
2023
2022
UK&I
(1,063)
1,310
-
-
789
(748)
288
(290)
Canada
(415)
555
106
(90)
68
(63)
71
n/a
UK&I
(1,037)
1,284
-
-
746
(715)
267
(270)
Canada
(357)
477
92
(78)
59
(54)
61
n/a
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.
31.9 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 the 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.
With the purchase of annuity buy-in insurance contracts for UK and Canadian DB pension plans, the Company significantly reduced
its exposure to balance sheet volatility, since the value of DB obligation and corresponding annuity buy-in insurance contracts change
in the same proportion. As of December 31, 2023, 81% of the DB obligation was funded through buy-in annuities (9% as of
December 31, 2022).
104
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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.
The assets of the UK plans were mainly composed of annuity buy-in insurance contracts as at December 31, 2023, and securities
from the government and financial sectors as at 31 December 2022. The change in composition in pension plan assets was due to
the UK buy-in transaction completed during 2023. Refer to Note 31.6 – Additional information on UK DB pension plans for
more details.
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
investment 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 for Canadian DB pension plans.
These contracts effectively removed all market and demographic risks associated with over 90% of the retiree liabilities at the time of
purchase of the annuity buy-in insurance contracts 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).
INTACT FINANCIAL CORPORATION 105
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
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 78% as at December 31, 2023 (79% as at December 31, 2022).
A portion of the pension plan liabilities contains 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, 2023,
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, 2023, 23% of the remaining pension plan assets excluding the annuities were invested in Government of
Canada Real Return Bonds (24% as at December 31, 2022).
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.
Note 32 – Segment information
32.1 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. 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 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. The Company distributes insurance through
a wide network of affinity partners and brokers or directly to consumers.
• As the Company exited these businesses, the following were excluded from operating performance effective:
January 1, 2022 and until its disposal on July 7, 2022, the underwriting results of the Middle East;
o
o
o October 1, 2023, the underwriting results of the UK Home and Pet Personal Lines.
January 1, 2023, the underwriting results of the UK Personal Lines motor market; and
• Effective October 1, 2023, results from the DLG brokered commercial lines acquisition are included in this segment.
• Refer to Note 5 – Business combinations and disposals for more details.
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.
106
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
32.2 Segment operating performance
All segment operating revenues presented in Table 32.1 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. Refer
to Section 31 – Non-GAAP and other financial measures of the Company’s MD&A for the definition and reconciliation of related
operating measures.
The reconciliation of the segment operating revenue and PTOI to the amounts recognized in the condensed consolidated statements
of income is presented in Table 32.2 and Table 32.3 respectively.
Table 32.1 – Segment operating performance
Years ended December 31,
CAN
UK&I
US
Corp
Total
CAN
UK&I
US
Corp
Total
2023
2022 (Restated)1
Operating income
Operating net underwriting revenue
Operating net investment income
Other operating income
14,086
-
505
4,143
-
-
2,114
-
57
22 20,365 13,531
-
496
1,346
570
1,346
8
4,107
-
-
1,866
-
36
18 19,522
927
548
927
16
Segment operating revenue
14,591
4,143
2,171
1,376 22,281 14,027
4,107
1,902
961 20,997
Operating net claims
Operating net underwriting expenses
Net unwind of discount on claims liabilities
Share of profit from invest. in associates & JV
Total finance costs
Other operating expense
(8,802)
(4,511)
-
167
(13)
(228)
(2,521)
(1,471)
-
-
-
-
(1,052)
(823)
-
-
-
(34)
949 (11,426)
(6,808)
(884)
167
(235)
(427)
(3)
(884)
-
(222)
(165)
(7,917)
(4,288)
-
169
(12)
(232)
(2,625)
(1,455)
-
-
-
-
(941)
(697)
-
-
-
(28)
467 (11,016)
(6,442)
(378)
169
(189)
(439)
(2)
(378)
-
(177)
(179)
PTOI
1,204
151
262
1,051
2,668
1,747
27
236
692
2,702
Operating income tax expense
Net income (loss) attributable to NCI
Non-operating component of NCI
Preferred shares dividends and other equity
distributions
NOI attributable to common shareholders
PTOI is comprised of:
Underwriting income (loss)
Operating net investment result
Distribution income
Total finance costs
Other operating income (expense)
(508)
(15)
-
(84)
2,061
2,131
462
467
(235)
(157)
1,326
-
433
(12)
-
27
-
-
-
-
773
-
444
(13)
-
151
-
-
-
-
239
-
23
-
-
968
462
-
(222)
(157)
27
PTOI
1,204
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2,668
1,051
1,747
151
262
(529)
4
(24)
(60)
2,093
2,064
549
441
(189)
(163)
483
549
-
(177)
(163)
692
2,702
228
-
8
-
-
236
INTACT FINANCIAL CORPORATION 107
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Table 32.2 – Reconciliation of segment operating revenue to amounts recognized in the Consolidated statements of income
Years ended December 31,
Segment operating revenue (Table 32.1)
Expense from reinsurance contracts
Net insurance revenue from claims acquired in a business combination
Assumed commissions and premium adjustment
Net insurance revenue from retroactive reinsurance contracts
Other income included in Operating net underwriting expenses
Net underwriting revenue from exited lines
Net investment income from exited lines
Revenue, as reported below
Represented by:
Insurance revenue
Net investment income
Other income (Table 26.2)
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
Table 32.3 – Reconciliation of PTOI to amounts recognized in the Consolidated statements of income
Years ended December 31,
Segment PTOI (Table 32.1)
Non-operating items:
Net gains (losses) on investment portfolio
Changes in discount rate and other financial assumptions
Normalisation of discount build in transition year
Net foreign currency gains (losses) included in net insurance financial result
Other net gains (losses)
Income (loss) from exited lines
Amortization of acquired intangible assets
Acquisition, integration and restructuring costs
Net result from claims acquired in a business combination
Other
Pre-tax income, as reported in the MD&A
Less: share of income tax expense from broker associates
Income before income taxes, as reported
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2023
22,281
3,056
1,418
244
(138)
93
562
-
27,516
25,507
1,346
663
27,516
2023
2,668
249
(156)
-
94
50
(313)
(270)
(503)
(3)
23
1,839
(35)
1,804
2022
(Restated)1
20,997
3,475
2,472
181
(142)
62
406
4
27,455
25,914
931
610
27,455
2022
(Restated)1
2,702
(326)
962
166
(155)
477
(126)
(254)
(353)
(5)
(45)
3,043
(36)
3,007
108
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
32.3 Selected segment assets and liabilities
Table 32.4 – Selected segment assets and liabilities
As at December 31,
CAN UK&I
2023
US
Corp
Total
CAN UK&I
US
Corp
Total
2022 (Restated)1
Investments (Note 6)
-
Net liability for incurred claims2
5,867
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Represents the net liability for incurred claims before net payables included in incurred claims and the reclass of net claims reported under the GMM.
-
2 21,641 13,415
- 35,601 35,601
5 20,591
- 37,083 37,083
-
13,746
-
5,280
1,891
2,026
Refer to Table 11.9 – Carrying amount of the net liability for incurred claims.
32.4 Information by geographic areas
Table 32.5 – Geographic areas
As at December 31,
Canada
UK&I
US
Total Canada
2023
2022 (Restated)1
US
UK&I
Total
Insurance and reinsurance contracts:
Insurance revenue
Insurance service expense
Expense from reinsurance contracts
Income from reinsurance contracts
15,514
(13,497)
(798)
492
7,389
(6,945)
(1,781)
1,569
2,604
(2,142)
(477)
381
25,507
(22,584)
(3,056)
2,442
15,472
(12,970)
(811)
515
8,192
(7,759)
(2,277)
2,005
2,250
(2,021)
(387)
393
25,914
(22,750)
(3,475)
2,913
Other information:
Total revenues (Table 32.2)
17,014
Total assets
31,293
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
16,688
31,548
27,516
55,979
7,672
16,869
2,830
7,817
8,372
14,558
2,395
7,635
27,455
53,741
The amounts presented above 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 32.6 – Significant operating subsidiaries by geographic areas
Operations
Canada
US
UK&I
Legal entities
• Belair Insurance Company Inc.
• Brokerlink Inc.
• Canadian Northern Shield Insurance Company
• Equisure Financial Network Inc.
•
IB Reinsurance Inc.
•
Intact Insurance Company
•
Intact Public Entities Inc.
•
Jevco Insurance Company
• 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
• The Johnson Corporation
• The Nordic Insurance Company of Canada
• Trafalgar Insurance Company of Canada
• Unifund Assurance Company
• Western Assurance Company
• The Guarantee Company of North America USA
• Striior Insurance Solutions (formerly 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 21 – Non-controlling interests for details.
INTACT FINANCIAL CORPORATION 109
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 33 – Additional information on the Consolidated statements of cash flows
33.1 Cash flows from operating activities
Table 33.1 – Cash flows from operating activities
Years ended December 31,
Adjustments for non-cash items
Net (gains) losses on investment portfolio (Note 24)
Other net (gains) losses (Note 25)
Depreciation of property and equipment2
Amortization of intangible assets
Net (discounts) premiums on debt securities
DB pension expense (Note 31)
Share-based payments expense
Share of profit from investments in associates and joint ventures (Note 15)
Other
Changes in operating assets and liabilities
Contributions to the DB pension plans (Note 31)
Changes in insurance and reinsurance contracts
Share-based payments
Other operating assets
Other operating liabilities
Dividends received from investments in associates and joint ventures (Note 15)
2023
2022
(Restated)1
(249)
(50)
161
436
(37)
1
120
(96)
159
445
(1,027)
879
(14)
10
(137)
39
(250)
326
(477)
174
389
120
84
152
(103)
103
768
(228)
365
(15)
(42)
169
49
298
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
2 Includes depreciation of right-of-use assets of leases.
Cash and cash equivalents with restricted use was approximately $232 million and $354 million as at December 31, 2023 and
2022, respectively.
110
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 34 – 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.
34.1 Transactions with associates and joint ventures
Table 34.1 – Transactions with associates and joint ventures
As at December 31,
Income (expenses) recognized in:
Insurance revenue
Insurance service expense
Net investment income
Assets (liabilities) recognized in:
Loans and other receivables
Other payables and other liabilities
Insurance contract liabilities
2023
2022
(Restated)1
-
(363)
8
111
(188)
69
9
(421)
5
94
(153)
40
1 Restated for the adoption of IFRS 17 – Insurance contracts. Refer to Note 2 – Adoption of new accounting standards.
34.2 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 34.2 – Aggregate compensation of key management personnel
Years ended December 31,
Compensation1
Share-based payments
2023
2022
22
30
52
28
29
57
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.
34.3 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, 2023 ($6 million – December 31, 2022).
The Company made contributions to the Canadian and UK pension plans of $1,027 million for the year ended December 31, 2023
($228 million – December 31, 2022).
INTACT FINANCIAL CORPORATION 111
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 35 – Commitments and contingencies
35.1 Commitments
The Company has entered into commercial leases mainly related to real estate right-of-use assets, as well as other commitments.
The remaining life of these commitments ranges from one to 18 years. Refer to Note 10.5 b) – Financial liabilities by contractual
maturity and Note 17.2 – 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 35.1 – Other non-cancellable commitments
As at December 31, 2023
Less than 1 year
From 1 to 5 years
Over 5 years
Leases1
Investments2
Other
83
233
247
563
421
-
-
421
124
67
-
191
Total
628
300
247
1,175
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 35.2 – Amounts recognized in the Consolidated statements of income
Years ended December 31,
Interest expense on lease liabilities
Operational costs and variable lease payment expenses
35.2 Contingencies
2023
19
114
2022
15
71
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 and reinsurance 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.
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.
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 insurance contract liabilities reflects court judgments across the jurisdictions that business operates in. These
judgments are complex and create a number of uncertainties and the Company continues to monitor the progression of these
judgments, including any appeal to a higher court.
Subsequent to year end, on January 16, 2024, a judgment in a COVID-19 business interruption case was handed down in the UK,
following an appeal hearing. The findings were consistent with assumptions previously made and, as a result, no adjustments to the
consolidated financial statements were necessary related to the judgment.
112
INTACT FINANCIAL CORPORATION
INTACT FINANCIAL CORPORATION
Notes to the Consolidated financial statements
(in millions of Canadian dollars, except as otherwise noted)
Note 36 – Disclosures on rate regulation
36.1 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 36.1 – 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 insurance revenue covered by a “file and approve” rate setting mechanism totalled $5.1 billion,
or 74% of the Canadian Company’s automobile insurance revenue for the year ended December 31, 2023 ($5.0 billion, or 74% –
December 31, 2022).
36.2 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.
36.3 UK&I
In the UK&I, there are no regulations requiring insurance companies to file their rates, however, there are rules to ensure that insurance
companies provide quotes for renewing home and automobile insurance policies that are not greater than quotes for a new customer
through the same channel.
Note 37 – Standards issued but not yet effective
In October 2022, the IASB amended IAS 1 – Presentation of Financial Statements (“IAS 1”) to clarify how covenants with which an
entity must comply within twelve months after the reporting period affect the classification of a liability. The amendments also require
an entity to disclose additional information in the notes to the financial statements to enable stakeholders to understand the risk that
non-current liabilities could become repayable within twelve months after the reporting date.
The amendments will be effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted.
The Company does not anticipate that this amendment will have a significant impact on its consolidated financial statements.
INTACT FINANCIAL CORPORATION 113
Five-year financial history
This table contains non-GAAP and other financial measures. Refer to Section 31—Non-GAAP and other financial measures
of the MD&A for the year-ended December 31, 2023 for further details.
Consolidated performance
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Underwriting income (loss)1
Operating net investment income1
Net unwind of discount on claims liabilities1,2
Operating net investment result1,2
Distribution income1
Net operating income attributable to common shareholders1
Non-operating results1
Net income
Combined ratio (discounted)1,2 / Operating combined ratio1,3
Combined ratio (undiscounted)1,2
Per share measures ($)
Net operating income per share1
Earnings per share
Book value per share1
Dividend per common share
Return on equity
Operating return on equity1
Adjusted return on equity1
Return on equity1
IFRS 17 basis
IFRS 4 basis
2023
2022
2021
2020
2019
22,370
20,365
2,131
1,346
(884)
462
467
2,061
(829)
1,331
89.5%
94.2%
11.70
6.99
81.71
4.40
14.2%
11.7%
8.8%
21,005
19,522
2,064
927
(378)
549
441
2,093
341
2,450
89.4%
91.8%
11.92
13.63
82.84
4.00
14.0%
19.2%
16.3%
17,283
16,043
1,787
706
n.a.
n.a.
362
2,017
(70)
2,088
88.8%
n.a.
12.41
12.40
82.34
3.40
17.8%
21.0%
17.0%
12,039
11,220
1,227
577
n.a.
n.a.
275
1,419
(535)
1,082
89.1%
n.a.
9.92
7.20
58.79
3.32
18.4%
15.0%
12.8%
11,049
10,211
465
576
n.a.
n.a.
209
860
(257)
754
95.4%
n.a.
6.16
5.08
53.97
3.04
12.5%
11.4%
10.0%
[ 272 ]
2023 Intact Financial Corporation Annual Report Underwriting performance
P&C Canada
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
Personal auto
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
Personal property
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
Commercial lines — Canada
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
P&C U.K.&I (in Canadian dollars)4
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
Commercial lines — U.S. (in Canadian dollars)
Operating direct premiums written1
Operating net underwriting revenue1,2 / Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 / Operating combined ratio1,3
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
IFRS 17 basis
IFRS 4 basis
2023
2022
2021
2020
2019
14,891
14,086
94.5%
5,956
5,808
94.7%
3,877
3,650
100.7%
5,058
4,628
89.3%
4,706
4,143
96.4%
2,773
2,114
88.7%
–
–
–
13,995
13,531
90.2%
5,514
5,557
93.2%
3,632
3,493
89.2%
4,849
4,481
87.2%
4,664
4,107
99.3%
2,346
1,866
87.8%
–
–
–
12,023
11,450
86.7%
4,843
4,825
86.9%
3,104
2,924
83.8%
4,076
3,701
88.6%
2,538
2,319
93.4%
1,988
1,652
92.9%
734
608
90.7%
10,216
9,633
88.0%
4,322
4,187
86.6%
2,586
2,444
81.7%
3,308
3,002
95.1%
–
–
–
9,399
8,775
95.9%
4,067
3,818
97.7%
2,337
2,184
92.5%
2,995
2,773
96.0%
–
–
–
1,823
1,582
94.9%
1,650
1,431
93.2%
–
–
–
–
–
–
55,979
2,671
22.4%
53,741
2,379
20.7%
66,349
2,891
23.0%
35,119
2,729
24.1%
32,292
1,222
21.3%
1 These are non-GAAP and other financial measures. Refer to Section 31—Non-GAAP and other financial measures of the MD&A for the year-ended December 31, 2023
for further details.
2 Represents a nomenclature and definition change made following the adoption of IFRS 17. Refer to Section 31—Non-GAAP and other financial measures of the MD&A
for the year-ended December 31, 2023 for further details.
3 Represent the nomenclature and definition as reported under IFRS 4. The glossary of IFRS 4 terms is available in our 2022 Annual Report (pages 242 to 245).
4 Effective Q4-2023, we have exited our U.K. personal lines operations. As a result, the U.K.&I segment will no longer show a breakdown between Personal lines
and Commercial lines.
[ 273 ]
2023 Intact Financial Corporation Annual Report Three-year quarterly financial history
This table contains non-GAAP and other financial measures. Refer to Section 31—Non-GAAP and other financial measures
of the MD&A for the year-ended December 31, 2023 for further details.
IFRS 17 basis 2023
IFRS 17 basis 2022
IFRS 4 basis 2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Consolidated performance
Operating direct premiums written1
5,410
5,925
6,226
4,809
5,125
5,423
5,801
4,656
5,017
5,447
4,297
2,522
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Underwriting income (loss)1
Operating net investment income1
Net unwind of discount on
claims liabilities1,2
Operating net investment result1,2
Distribution income1
Net operating income attributable
to common shareholders1
5,259
5,226
5,016
4,864
5,041
4,918
4,802
4,761
4,931
4,871
3,482
2,759
787
376
340
349
391
326
613
295
485
279
472
232
576
211
531
205
(217)
(225)
(216)
(226)
(117)
(90)
(88)
(83)
159
109
124
116
110
137
69
105
162
94
142
113
752
370
402
537
508
488
123
142
581
122
92
600
220
n.a.
n.a.
77
426
191
n.a.
n.a.
105
464
154
n.a.
n.a.
118
297
141
n.a.
n.a.
62
516
666
505
502
344
Non-operating results1
Net income
(205)
(292)
531
163
(191)
260
(141)
377
(221)
353
(161)
375
725
1,235
(2)
487
17
701
(265)
300
6
573
172
514
Combined ratio (discounted)1,2 /
Operating combined ratio1,3
Combined ratio (undiscounted)1,2
Per share measures ($)
Net operating income per share1
Earnings per share
Book value per share1
Dividend per common share
Return on equity
Operating return on equity1
Adjusted return on equity1
Return on equity1
Underwriting performance
P&C Canada
85.0% 93.5% 92.2% 87.4% 90.4% 90.4% 88.0% 88.9%
92.1%
90.1% 98.3% 96.3% 91.9% 93.2%
91.7% 90.2%
87.8%
91.3%
86.7% 89.3%
n.a.
n.a.
n.a.
n.a.
4.22
2.78
81.71
1.10
2.10
0.83
2.30
1.30
77.24
76.29
1.10
1.10
3.06
2.06
77.72
1.10
2.91
1.88
82.84
1.00
14.2% 12.2% 12.8% 14.1%
14.0%
11.7% 10.6% 11.8% 18.3%
19.2%
9.0% 15.4% 16.3%
8.8%
7.8%
2.78
2.05
81.82
1.00
n.a.
n.a.
n.a.
3.30
6.93
83.74
1.00
2.93
2.76
3.78
3.85
84.78
82.34
1.00
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
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
17.8%
18.3%
19.8% 19.0%
21.0% 20.2% 22.9% 20.1%
17.0%
16.5%
19.6% 17.6%
Operating direct premiums written1
3,682
3,943
4,270
2,996
3,410
3,657
4,035
2,893
3,283
3,564
3,051
2,125
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
Personal auto
3,658
3,586
3,474
3,368
3,454
3,447
3,356
3,274
3,296
3,280
2,492
2,382
86.7% 101.8% 97.9% 91.7% 87.6% 92.5% 89.6%
91.1%
84.4% 89.2% 85.0% 88.2%
Operating direct premiums written1
1,408
1,668
1,711
1,169
1,256
1,535
1,608
1,115
1,234
1,544
1,251
814
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
1,524
1,475
1,430
1,379
1,402
1,423
1,385
1,347
1,390
1,404
1,048
983
95.2% 95.4% 91.2% 97.1% 93.5%
94.4%
91.3%
93.7%
87.5%
85.1% 82.4% 93.4%
[ 274 ]
2023 Intact Financial Corporation Annual Report IFRS 17 basis 2023
IFRS 17 basis 2022
IFRS 4 basis 2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Personal property
Operating direct premiums written1
946
1,109
1,062
760
874
1,034
1,008
716
831
965
790
518
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
Commercial lines —Canada
949
925
898
878
895
884
865
849
838
828
637
621
75.8% 123.7% 119.2% 84.5% 76.5% 95.9% 96.5% 88.3%
79.5% 93.5% 83.3% 77.4%
Operating direct premiums written1
1,328
1,166
1,497
1,067
1,280
1,088
1,419
1,062
1,218
1,055
1,010
793
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
P&C U.K.&I (in Canadian dollars)4
1,185
1,186
1,146
1,111
1,157
1,140
1,106
1,078
1,068
1,048
807
778
84.4% 92.7% 89.5% 90.8%
89.1%
87.6%
82.1% 89.9% 84.3%
91.2% 89.6% 90.1%
Operating direct premiums written1
1,112
1,157
1,202
1,235
1,150
1,058
1,164
1,292
1,274
1,264
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
Commercial lines —U.S.
(in Canadian dollars)
1,011
1,103
1,037
992
1,037
993
1,016
1,061
1,145
1,174
104.6% 92.5% 94.1% 94.6% 116.4% 90.3% 92.0% 98.2% 93.0% 93.9%
–
–
–
–
–
–
Operating direct premiums written1
616
825
754
578
565
708
602
471
460
619
512
397
Operating net underwriting revenue1,2 /
Operating net earned premiums1,3
Combined ratio (undiscounted)1,2 /
Operating combined ratio1,3
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
590
530
498
496
546
475
424
421
485
415
379
373
86.4% 88.5% 91.3% 89.1% 84.7% 89.3%
91.0% 86.8% 92.5% 92.8% 90.3% 96.3%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
734
608
90.7%
–
–
–
55,979 55,007 53,255 53,692
53,741
53,570 52,837
54,766 66,349
66,173
65,491 35,264
2,671
2,379
2,482
22.4% 22.7% 22.5% 22.4% 20.7%
2,796
2,841
2,490
21.9%
2,479
19.8%
2,567
2,891
2,693
2,558 3,008
23.4% 23.0% 23.9%
24.1% 22.5%
1 These are non-GAAP and other financial measures. Refer to Section 31 —Non–GAAP and other financial measures of the MD&A for the year–ended December 31, 2023
for further details.
2 Represents a nomenclature and definition change made following the adoption of IFRS 17. Refer to Section 31 —Non–GAAP and other financial measures of the MD&A
for the year-ended December 31, 2023 for further details.
3 Represent the nomenclature and definition as reported under IFRS 4. The glossary of IFRS 4 terms is available in our 2022 Annual Report (pages 242 to 245).
4 Effective Q4-2023, we have exited our U.K. personal lines operations. As a result, the U.K.&I segment will no longer show a breakdown between Personal lines
and Commercial lines.
[ 275 ]
2023 Intact Financial Corporation Annual Report year ended December 31, 2023, including a major earthquake,
climate change, climate-related litigation or activism, catastrophe,
increased competition and disruption, turbulence in financial
markets, reserving inadequacy, underwriting inadequacy,
governmental and/or regulatory intervention, cyber security
failure, failure of a major technology initiative, inability to contain
fraud and/or abuse, customer dissatisfaction, social unrest, third
party reliance, failure of an acquisition or divestiture, employee
defined benefit pension plan risks, reinsurance inadequacy,
distribution risks, inability to retain and to attract talent, business
interruption to our operations, credit downgrade, limit on dividend
and capital distribution as well as artificial intelligence risk.
All of the forward-looking statements included in this annual
report are qualified by these cautionary statements. 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.
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.
Forward-looking
statements
Certain of the statements included in this annual report
constitute forward-looking statements. Unless otherwise
indicated, all forward-looking statements in this annual report
are made as at March 27, 2024, and are subject to change
after that date. This annual report contains forward-looking
statements with respect to the acquisition of Direct Line
Insurance Group plc’s (“DLG”) brokered Commercial Lines
operations (“the DLG brokered commercial lines acquisition”),
the exit of Royal & Sun Alliance Insurance Limited from the
U.K. personal lines market, including the sale of our U.K. direct
personal lines operations to Admiral Group plc (“Admiral”), the
realization of the expected strategic, financial and other benefits
of the transactions and the related economic conditions on the
Company’s operations and financial performance. This annual
report also contains forward-looking statements with respect to
the Company’s climate-related strategy, goals or plans, based
on our current expectations, estimates and projections involving
inherent risks and uncertainties, as they are based on various
factors and assumptions, all of which are difficult to predict and
many of which are beyond our control, including technological
advancement, development of climate-related measurement
methodologies, varying decarbonization efforts across
economies, governmental or regulatory action, geopolitical
factors impacting global energy needs, challenges of balancing
emission reduction targets with an orderly, just and inclusive
transition, evolution of customer behaviour, our ability to gather
and verify data, the participation of various stakeholders or
our ability to implement various initiatives across our global
operations within a specified timeframe.
Forward-looking statements are based on estimates and
assumptions made by management based on management’s
experience and perception of historical trends, current
conditions and expected future developments, as well as
other factors that management believes are appropriate in the
circumstances. In addition to other estimates and assumptions
which may be identified herein, estimates and assumptions
have been made regarding, among other things, the realization
of the expected strategic, financial and other benefits of the
DLG brokered commercial lines acquisition, Royal & Sun
Alliance Insurance Limited’s exit from the U.K. personal lines,
including the sale of our U.K. direct personal lines operations
to Admiral, and economic and political environments and
industry conditions. There can also be no assurance that the
strategic and financial benefits expected to result from the DLG
brokered commercial lines acquisition will be realized. Many
factors could cause the Company’s actual results, performance
or achievements or future events or developments to differ
materially from those expressed or implied by the forward-
looking statements, including, without limitation, credit, market,
liquidity, operational, strategic and legal risks and the risks
discussed in Section 29.6—Top and emerging risks that may
affect future results and Section 29.7—Other risk factors that
may affect future results of the MD&A of the Company for the
[ 276 ]
2023 Intact Financial Corporation Annual Report Shareholder and
corporate information
Toronto Stock Exchange (TSX) listings
Transfer agent and registrar
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
Earnings conference
call dates
Q1 —May 8, 2024
Q2 —July 31, 2024
Q3 —November 6, 2024
Q4 —February 12, 2025
Annual meeting of shareholders
Date: Wednesday, May 8, 2024
Time: 1:00 p.m. (Eastern Time)
Place: Virtual-only meeting via
live webcast. The webcast will
be available at https://web.
lumiagm.com/#/452621456.
Detailed information on how to
participate in the Meeting is included
in our Management Proxy Circular.
Common share dividend history
Computershare Investor Services Inc.
100 University Avenue, 8th Floor, North Tower
Toronto, Ontario M5J 2Y1
1-800-564-6253
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.
Record date
Payable date
Amount
Information for shareholders outside of Canada
December 15, 2023
December 29, 2023
September 15, 2023
September 29, 2023
June 15, 2023
June 30, 2023
March 15, 2023
March 31, 2023
December 15, 2022
December 30, 2022
September 15, 2022
September 30, 2022
June 15, 2022
March 15, 2022
June 30, 2022
March 31, 2022
$1.10
$1.10
$1.10
$1.10
$1.00
$1.00
$1.00
$1.00
Common share dividend dates in 2024*
Record date
March 15, 2024
June 14, 2024
September 13, 2024
December 16, 2024
Payable date
March 29, 2024
June 28, 2024
September 27, 2024
December 31, 2024
Preferred share dividend dates in 2024*
Record date
March 15, 2024
June 14, 2024
September 13, 2024
December 16, 2024
Payable date
March 31, 2024
June 30, 2024
September 30, 2024
December 31, 2024
* Dividends are not guaranteed and are subject to approval by the Board of Directors.
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.
Auditors
Ernst & Young LLP
Investor inquiries
Media inquiries
Shubha Khan
Vice President, Investor Relations
1-416-341-1464, ext. 41004
shubha.khan@intact.net
David Barrett
Director, Media, Social
and Owned Channels
1-416-227-7905 / 1-514-985-7165
media@intact.net
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.
A glossary of abbreviations can be found in Section 35—Glossary and
definitions of the MD&A. A glossary of definitions of GAAP and non-GAAP
financial measures, as well as other insurance-related terms used in our
financial reports, can be obtained by visiting the “Investors” section of the
www.intactfc.com website.
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.
[ 277 ]
2023 Intact Financial Corporation Annual Report Committed to
building climate
resilient communities
Natural infrastructure is the
first line of defense against
climate change.
Intact supports the protection of natural assets
and the development of nature-based solutions
through long-term partnerships with Nature
Conservancy of Canada and Gloucestershire
Wildlife Trust.
[ 278 ]
2023 Intact Financial Corporation Annual Report We help people adapt
to the impacts of
extreme weather.
We help municipalities to
be better prepared for
wildfires and floods.
Intact provides funding to the Intact Centre
on Climate Adaptation for the development
of practical solutions that protect our
communities from the increasing impacts
of severe weather.
Intact launched a grant program to
help municipalities across Canada
with initiatives that accelerate their
own adaptation solutions.
Why invest
in Intact
Largest provider of P&C
insurance in Canada, leader in
commercial lines in the U.K. 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
2023 Kincentric Best Employer
in Canada and the U.S.