TORONTO - Intact Financial Corp. (TSX:IFC) remains convinced of the benefits of auto insurance reforms in Ontario, but Canada's largest provider of property and casualty insurance is "prudently" adding to reserves amid uncertainty over bodily injury claims, CEO Charles Brindamour said Wednesday.
Brindamour was commenting during a conference call with analysts on the company's booking of a combined ratio of 103 per cent on its personal auto business in what was otherwise a stellar fourth-quarter earnings report.
Brindamour conceded that the sector's combined ratio — which compares the amount received in premiums to the amount paid out in claims — was "sure to raise some questions."
"For a number of quarters now, we've indicated that though we saw strong field results in Ontario, we maintain our prudent reserving approach given the level of uncertainty in the environment," he said, noting a court decision last fall that further expanded the definition of catastrophic impairment in accident benefits.
"Despite this adjustment, our Q4 accident-benefit loss ration in Ontario was slightly improved versus Q4 of 2011," he said
Meanwhile in Alberta, a system Brindamour described as "quite stable since its own reforms in 2004," there had been an increased level of activity on bodily injury files in litigation in recent months as certain types of injuries became exluded from the minor injury cap.
"So given these observations for Alberta, we prudently moved to stay ahead of this potential trend by increasing reserces for all accident years since the 2004 reforms, further contributing to the unfavourble development experience in the quarter," he said.
Auto insurance premiums have come under pressure in Ontario recently, with NDP Leader Andrea Horwath demanding a 15 per cent cut to compensate for dramatically reduced payouts as a result of changes to the province's auto insurance regulations in 2010, under the McGuinty Liberal government.
Horwath said if the industry won't cut premiums voluntarily, the government should mandate it through the provincial regulator, the Financial Services Commission. She made the pitch as Kathleen Wynne takes over leadership of a minority government after Dalton McGuinty stepped aside as Ontario premier.
While Wynne has said she is willing to discuss Horwath's concerns, she sees dealing with insurance fraud as a major piece of the puzzle.
Intact's fourth-quarter earnings soared $181 million or $1.32 per share, up 115 per cent from $84 million or 62 cents in the same prior-year period as the insurer benefited from improved operating results and higher investment gains.
Intact's net operating income, which is another measure of profitability used by analysts, was up 25 per cent to $1.42 per share or $194 million.
For all of 2012, Intact reported a 26 per cent increase in net income to $587 million, or $4.33 per share, from $465 million, or $3.96 per share, in 2011.
The company says its strong results included improved underwriting, with seven per cent more in premium revenue following an acquisition.
Meanwhile, the company announced Wednesday that its quarterly dividend will rise by 10 per cent to 44 cents per share. On an annualized basis, that's $1.76 per share — providing investors with a yield of nearly 2.7 per cent. The move marked the company's eight consecutive year of dividend increases.
In its outlook, Intact said it expects overall industry premium growth to evolve at a similar pace to that of the last 12 months.
"Furthermore, the continued low interest rate environment could support firmer market conditions," it said.
"Overall, the industry's ROE (return on equty) is likely to progress at the same upper single digit rate that it recorded in the first nine months of 2012, and will likely remain slightly below its long-term average of 10 per cent in 2013," it added.
Results in personal property insurance "may benefit from continued hard market conditions and potential initiatives aimed at mitigating losses from future catastrophes," it said.
In commercial lines — types of insurance sold to businesses — Intact doesn't expect to improve its loss ratio quickly but said conditions should improve at a moderate pace over time.