Where Intact sees personal auto and inflation heading

Intact Financial Corporation expects inflation’s effect on personal auto to continue to tame, but the insurer has levers in place if the uncertain economic environment throws another curveball, senior executives said during a 2023 Q1 earnings call.

Personal auto premiums for Canada’s largest insurer rose 5% to about $1.17 billion in 2023 Q1 from $1.12 billion (restated) in 2022 Q1, improving three points from the preceding quarter as a result of rate actions in firming market conditions.

The personal auto combined ratio of 97.1% reflects “winter seasonality and elevated by moderating inflation,” Intact said in a press release. Intact added it expects to remain at a sub-95% seasonally adjusted combined ratio in the next 12 months.

Personal auto premiums are also expected to grow by mid-to-high single digits in response to inflation and evolving driving patterns.

“There’s an expectation that inflation abates some more,” Intact Financial Corporation CEO Charles Brindamour said during the 2023 Q1 earnings call. “If that [is] not the case or things are going the other way…then we have leverage to move rates if we feel that severity is not abating at the speed at which we’re hoping for.

“But we’re getting in the zone, there’s no doubt.”

Brindamour and other senior executives discussed Intact’s personal auto book of business in response to a question from Paul Holden, an analyst at CIBC World Markets. He asked where personal auto should be by the end of the year and/or what normalized claims inflation should look like, especially given additional technology in vehicles these days.

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“We expect inflation to start taming down; rates are continuing to go up,” said Guillaume Lamy, Intact’s senior vice president of personal lines. “So, those two lines should cross around mid-year.”

Lamy noted personal auto rates increased by 9% in 2023 Q1 (6% earned), which will continue for the next few months and peak mid-year.

Intact’s pricing is also taking inflation uncertainty into consideration. In Q1, claims frequency was relatively mild again, he added. “[It’s] below what we’re expecting. We’re still pricing for some kind of an increase in frequency.”

Brindamour invited Patrick Barbeau, Intact’s executive vice president and chief operating officer, to speak about one of the levers to keep inflation in check — supply chain actions.

“Without pointing to a number, if you look at what created a bit of a decrease in inflation this quarter but also the quarter before that, market values of used cars and new cars have stabilized over four to six months in the case of both U.S. and Canada,” Barbeau said. “But when you compare year-on-year, it’s still a significant pressure on inflation, on the loss cost.”

Prices for vehicle parts continue to increase in Canada and the U.S., but not at the same pace as last year, Barbeau pointed out. “And the capacity of the supply chain in general in Canada is in better shape.”

Barbeau added that Intact has built a competitive advantage in the supply chain, especially in the body shop area; in 2019, Intact bought On Side Restoration Services. Two-thirds of repairs are now done through the preferred network, and 13 dedicated shops were opened in Canada last year, Barbeau reported.

“In fact, we’ve seen the cycle times reduced in Q1 in our own book,” he said. “The total pending claims of car repairs, if I look at the end of December versus the end of March, has reduced by 10% in our book, which is a sign of the accelerated cycle time we see here.”

Brindamour added that On Side is also employing innovative techniques, including improved drying techniques to speed up cycle times, reduce claims costs and improve the customer experience.

This is the first quarter of reporting under IFRS 17. Intact saw a combined ratio of 87.4% (91.9% on an undiscounted basis), operating direct written premiums up 4% to $4.8 billion, underwriting income of $613 million and net income of $377 million.

Feature image by iStock.com/Dmytro Varavin