In what its CEO is calling its best underwriting performance in five years, Intact Financial Corporation today reported net operating income for the quarter ended December 31, 2011 of $152 million, up $72 million from the same quarter of last year.
On a per share basis, net operating income increased 61% to $1.14. The increase was driven by improved underwriting results and higher investment income. Net income was $84 million, or $0.62 per share, compared to $107 million, or $0.95 per share, for the same period last year. The decrease reflects $42 million of integration costs and a $41 million provision for the contingent consideration to be paid for the acquisition of AXA Canada. Direct premiums written increased 49% over the same quarter a year ago to reach $1.6 billion, reflecting the contribution of AXA Canada and a rebound in organic growth.
The organic growth benefited from the much improved sales performance of the company's direct auto business in Ontario.
For the year, total direct premiums written increased by 13% to $5.1 billion. Personal auto underwriting income amounted to $52 million up from a loss of $18 million recorded in the fourth quarter of 2010. The combined ratio improved 9.7 percentage points to 93.3% primarily as a result of an improvement in Ontario.
Net operating income for the year was $460 million, up $58 million from the previous year. On a per share basis, net operating income increased 12% to $3.91. Net income was $465 million, or $3.96 per share, compared to $498 million, or $4.32 per share in 2010. The decrease was related to integration costs and an increase in the fair value of the contingent consideration. The combined ratio improved by one percentage point to 94.4% compared to last year. Direct premiums written for the year increased 13% versus 2010 to reach $5.1 billion. The book value per share was up 12% during the year to $29.73.
"Our excellent fourth quarter results rounded off a strong year for our company as we recorded our best underwriting performance in the past five years," said Charles Brindamour, chief executive officer of Intact Financial Corporation. "Despite another challenging year for the industry, we demonstrated our strength and resilience and executed on our growth strategy."
"With the acquisition of AXA Canada now complete, we are beginning to reap the positive benefits of our enhanced leadership position. We look forward to continuing to outperform the industry and pursuing our efforts towards building one of the best P&C insurers in the world."
"As we enter 2012, our solid financial position and the quality of our operating earnings enabled us to increase our dividend, for the seventh consecutive year."
Dividends
The board of directors increased the company's quarterly dividend by 8%, or 3 cents, to 40 cents per share on its outstanding common shares. The board also declared a quarterly dividend of 26.25 cents per share on the Company's Class A Series 1 and Class A Series 3 shares. All dividends are payable on March 30, 2012 to shareholders of record on March 15, 2012.
Current Outlook
Industry premiums are likely to increase in the next 12 months at a pace similar to last year. It is expected that growth in personal auto will be in the mid-single digit range, driven by Ontario. Growth is expected to be in the upper single digits in personal property, due to the impact of water-related losses and more frequent and severe storms. Commercial line premiums are expected to grow at a low single digit rate. The low interest rate environment and reinsurance market conditions should support firmer industry premium levels.
At an industry level, while the combined ratio might improve modestly as a result of the better pricing environment and Ontario auto reforms, the industry's ROE is unlikely to improve materially in the near term as the low interest rate environment will continue to put pressure on investment income.
The company says it is well-positioned to continue outperforming the P&C insurance industry in the current environment due to its pricing and underwriting discipline, claims management capabilities, prudent investment and capital management practices and solid financial position. Given these attributes, the company strongly believes that it will outperform the industry's ROE by at least 500 basis points in the next 12 months.