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AUTO HOME BUSINESS
Fixed Income
Investor Presentation
Ken AndersonVice President Investor Relations & Treasurer
Intact Financial Corporation (TSX: IFC)
June 15, 2017
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Canada’s largest home, auto and business insurer
5.9%
6.4%
9.1%
10.4%
17.3%
#5
#4
#3
#2
IFC
Largest market sharein a fragmented industry
10-year outperformance versus the industry
Distinct brands
Industry data: IFC estimates based on MSA Research Inc. Please refer to Important notes on page 3 of the Q1-2017 MD&A for further information.All data as at December 31, 2016.1 Premium growth includes the impact of industry pools.2 Combined ratio includes the market yield adjustment (MYA).3 ROEs reflect IFRS beginning in 2010. Since 2011, IFC's ROE is adjusted return on common shareholders' equity (AROE).
4.2 pts
3.3 pts
5.4 pts
Top 5 represent
49%market share
Premium growth 1
Combined ratio 2
Return on equity 3
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Consistent outperformance
4.1 pts
7.4 pts
3.1 pts3.6 pts
Personal Auto PersonalProperty
CommercialP&C
CommercialAuto
Five-year average loss ratio outperformance gap
FY2016 outperformance
(for the period ended December 31, 2016)
(for the period ended December 31, 2016)
Sophisticated pricing and
underwriting
Broker relationships
Tailored investment
management
Multi-channel distribution
Proven acquisition
strategy
In-house claims
expertise
Scaleadvantage
2.4%
3.8%
99.6%
95.2%
5.2%
11.0%
Premium growth 1
Combined ratio 2
Return on equity 3
IFC Industry
Industry data: IFC estimates based on MSA Research Inc. Please refer to Important notes on page 3 of the Q1-2017 MD&A for further information.1 Premium growth includes the impact of industry pools.2 Combined ratio includes the market yield adjustment (MYA).3 IFC's ROE is adjusted return on common shareholders' equity (AROE).
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What we are aiming to achieve
Our customers are our advocates
Our employees are engaged
Our company is one of the most respected
Two million advocates by 2020
One of Canada’s
best employers
Outperform industry ROE by
500 basis points every year
Grow NOIPS 10% per year
over time
� Close to one million advocates
� Highest broker satisfaction scores ever recorded
� Unaided brand awareness is at an all-time high and continues to climb
� Named one of Canada’s Top 100 Employers and one of the Best Employers in Canada for second year in a row
� Recognized as one of Canada's Top Employers for Young People
� The Globe and Mail’s Board Games ranked us #2 for the quality of our governance
� Made the Best 50 Corporate Citizens in Canada list for 4th straight year
Goal Target Progress
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Sustaining performance going forward
Beat industry ROE by 500 bps every year
NOIPS growth of 10%per year over time
Investments & Capital Mgmt
2 points
Pricing & Segmentation
2 points
Claims Management3 points
Organic Growth3-5%
Margin Improvement0-3%
Capital Mgmt & Deployment
3-5%
* Leaves 2 points to
reinvest in customer
experience (price, product,
service, brand)
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Financial strengthStrong balance sheet and disciplined financial management
* Excess capital at 170% includes net liquid assets in non regulated entities
• High quality, strategically
managed investments
• Conservative reserving
practices
• MCT well above 170%
• Target 20% debt-to-total capital
Strong balance sheet Our balance sheet
Investments
Total Assets
Total Liabilities
Total capitalization
Debt-to-total capitalization
Q1-2017 2016
$14.2 $14.4
$22.5 $22.9
Medium Term Notes $1.4 $1.4
Credit Facility - -
$16.4 $16.8
Shareholder’s equity $6.1 $6.1
$7.5 $7.5
MCT
Excess Capital (170%)*
18.5% 18.6%
223% 218%
$1,034M $970M
Common shares $2.1 $2.1
Preferred shares $0.5 $0.5
Retained earnings and other $3.6 $3.5
Debt plus preferred shares-to-total capitalization
25.0% 25.2%
6
In billions of Canadian dollars
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0%
20%
40%
60%
80%
100%
Investment portfolio asset mix
Fixed income: 70%
Fixed income credit rating
Common equity: 15%
Preferred shares: 10%
Loans: 3%Cash: 2%
*
* Net of hedging positions and financial liabilities related to investments, as of March 31, 2017
Fixed-Income Portfolio Common Equity
US, 10%
Canadian, 90%
Geographic diversification
Preferred shares credit rating
Investment portfolioA high quality investment portfolio of $14.2 billion
Canadian, 68%
US, 25%
Other, 7%
7
P2 81%
P3 19%AAA
44%
AA37%
A16%
BBB2%
Not rated1%
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Track record of prudent reserving practices
� Quarterly and annual fluctuations in reserve development are normal
� 2005 reserve development was unusually high due to the favourable effects of certain auto insurance reforms
� Our consistent track record of positive reserve development reflects our preference to take a conservative approach to establishing and managing claims reserves
Rate of claims reserve development(favourable prior year development as a % of opening reserves)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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Very strong levels of capital over time
Conservative and well managed leverage levels
Strong capital base
9
$435$599 $550 $681 $625
$970 $1,034
197% 205% 203% 209% 203% 218% 223%
2011 2012 2013 2014 2015 2016 Q1-2017
Excess Capital at 170% MCT
22.9%
18.9% 18.7% 17.3% 16.6%18.6% 18.5%
2011 2012 2013 2014 2015 2016 Q1-2017
Debt-to-cap IFC Target: 20%
As of Q1-2017 ScenarioMCT
Sensitivity
Interest rates 1% increase (3) pts
Common share prices 10% decline (1) pts
Preferred share prices 5% decline (2) pts
U.S. dollar 10% decline (0) pts
We have a low sensitivity to capital markets volatility
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Personal Property
24%
10
OneBeacon acquisitionStrong strategic rationale
= C$8.3 Bn in DPW
= C$9.9 Bn in DPW
Source: 2016 direct written premium as reported in MSA (Intact) and 10-K (OneBeacon), using April 26th exchange rate
Specialty8%
($628M)
Commercial24%
Personal Auto44%
Specialty23%
($2.3B)
Personal Auto37%
Commercial20%
Personal Property
20%
OneBeacon acquisitionStrong strategic rationale
� Creating a leading North American specialty insurer
� Focuses on small to mid-size businesses
� New growth pipeline
� New products and cross-border capabilities
� Brings high caliber management team
� Diversifies IFC’s business and geographic mix
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Accident
EnvironmentalEntertainment
Import expertise and expand product offering in Canada
Leverage Intact underwriting and pricing expertise to broaden offering in the US and drive profitable growth
Financial Institutions
Cross-Border1. Ability for both Intact and OneBeacon to service domestic
clients that do business in both countries2. Better compete with other North American insurers by
offering a seamless cross-border experience
Small to Mid-Size Commercial & Specialty Lines
Technology
OneBeacon acquisitionDriving cross market synergies
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OneBeacon acquisitionFinancially compelling & conservatively structured
� NOIPS neutral in year one and mid-single digit accretive in 24 months
� Immediately accretive to BVPS
� Attractive IRR estimated to be in excess of 15%1
� Maintains strong financial position and robust capitalization:
� MCT above 200%
� Debt-to-total capital ratio below 25% at closing and below target level of 20% within 24 months
� Significant downside protection against adverse reserve development
� Thorough reserve assessment factored in valuation
� Reinsurance coverage of up to US$200M
1 Internal rate of return based on equity returns per proposed financing plan. 2 Purchase price based on 94.041mm outstanding shares as at March 31, 20173 Price to book value based on book value as at March 31, 2017.4 Price to earnings based on consolidated earnings for year ended December 31, 2016
Selected financial highlights
billion total purchase price, in Canadian dollars, or US$1.7 billion2.$2.3P/BV3 purchase price, or 15.8x P/E4.1.65x
estimated MCT at close.>200%
internal rate of return (IRR) target is expected to be exceeded.15%
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OneBeacon acquisitionStrong financial position maintained
Debt
Preferred shares
Debt & Preferred shares
Excess capital
Equity
Total
$700 M
At announcement
$1,000 M
$700 M
$2,400 M
-
To date
$425 M
$150 M
$575 M
$754 M
$1,329 M
$600M - $700M
Balance
$350M - $450M
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A1
Long term issuer ratings of IFC’s credit
Financial strength Outlook
AA-
AA (low)
A+ (superior)
Stable
Stable
Stable
Baa1
A-
A
a-
“IFC’s consistent profitability, successful track
record of acquisitions and moderate financial
leverage limits the company’s execution and
integration risks”.
“OneBeacon adds product and geographic
diversification to Intact. The acquisition represents
the first material acquisition outside Canada and will
establish a footprint in most US states”.
“The acquisition […] will likely improve the
franchise in the medium term”. “ Intact has
demonstrated good integration expertise in past
acquisitions”.
“Fitch's affirmation […] reflects a company that is
solidly capitalized, with a very strong reserve
position and earnings profile”.
Ratings affirmed on May 3rd (1)
Ratings affirmed on May 2nd
Ratings affirmed on May 2nd
Ratings affirmed on May 3rd
Stable
(1) Moody’s outlook has been changed to stable from positive 14
OneBeacon acquisitionAll credit ratings affirmed following the announcement
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• Balance sheet optimization (20% debt-to-cap.)
• Acquisition financing
• Longer tenures preferred
• Strong credit profile
Debt profile
15
$250M
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2039 2040 2041 2042 20612042 20422027 2042
MTN Series 1Coupon: 5.41%Maturity: 3-Sep-19
MTN Series 4Coupon: 4.70%Maturity: 18-Aug-21
MTN Series 6Coupon: 3.77%Maturity: 2-Mar-26
MTN Series 2Coupon: 6.40%Maturity: 23-Nov-39
MTN Series 5Coupon: 5.16%Maturity: 16-Jun-42
MTN Series 3Coupon: 6.20%Maturity: 8-Jul-61
$300M
$250M
$250M
$250M
$100M
US
$ 2
75M
OneBeaconSenior unsecured notesCoupon: 4.60%Maturity: 9-Nov-22
$425M
MTN Series 7Coupon: 2.85%Maturity: 7-Jun-27
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Key takeaways
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Consistent outperformance
Strong balance sheet capitalization
Embedded risk management culture
Performance
Risk Management
Financial Strength
Financially compelling &
conservatively structuredOneBeacon
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Appendices
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Source: OneBeacon1 Represents gross premiums written from continuing operations which excludes exited or discontinued lines and is further adjusted to exclude $11 million in fronting-
related premiums.2 Financial strength rating as of March 31, 2017
� OneBeacon is a Bermuda-domiciled company operating in the US and focused on specialty insurance
� Offers a range of specialty insurance products across 16 diversified business units
� Differentiated, multi-channel distribution approach with an attractive mix of retail (70% of GPW) and wholesale (30% of GPW) distribution
� Flexible and scalable technology platform
� 2016 GPW US$1.2bn | 2016 Net income US$107m | 2016 & 2017 Q1 combined ratio of 97.3% & 94.5% | Book value US$1bn
� Rated A by AM Best / A- by S&P / A3 by Moody’s / A by Fitch2
Operational objective to achieve a combined ratio in the low 90’s for OneBeacon.
Cross-border growth opportunity to better serve Canadian client base.
Total: US$1,190 million
2016 GPW1 by Line of Business
Accident12%
Technology11%
Ocean Marine
11%
Healthcare11%
Government Risks7% Entertainment
7%
Tuition Reimbursement
6%
Inland Marine
6%
Surety5%
Programs4%
Management Liability
4%
Financial Services4%
Specialty Property3%
Other Professional Lines3%
Environmental3%
Financial Institutions3%
OneBeacon is a unique pure-play specialty lines insurer
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46%
25%
29%
Personal Auto
Personal Property
Commercial Lines
41%
27%
18%
14%
Ontario
Quebec
Alberta
Rest of Canada
28%
48%
9%
15%
Intact Insurance - Affiliated brokers
Intact Insurance - Other brokers
BrokerLink
Direct to consumer
2016 DPW by Business Line
2016 DPW by Geography
2016 DPW by Distribution Channel
A strong and diversified base for growth
* Excluding pools, as of December 31, 2016¹Affiliated brokers are either those in which we hold an equity investment or provide financing.
Operational snapshot
1
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Capital management framework Integrated decision making process
CapitalManagement
Target Leverage & Cap Structure
MCT% & Excess Capital level
Capital Allocation Decision
Maintain leverage ratio (target 20% debt-to-total capital)
Invest in growth initiatives
Maintain existing dividends
Increase dividends
Share buybacks
Excess c
apital
Strategic capital management
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Contact us
Media Inquiries
Stephanie Sorensen
Director, External Communications
1 (416) 344-8027
General Inquiries
Intact Financial Corporation700 University AvenueToronto, ON M5G 0A1
1 (416) 341-1464
1-877-341-1464 (toll-free in N.A.)
Investor Relations Inquiries
1 (416) 941-5336
1-866-778-0774 (toll-free in N.A.)
Ken Anderson
VP Investor Relations & Treasurer
1 (855) 646-8228, ext. 87383
Maida Sit
Director, Investor Relations
1 (416) 341-1464 ext. 45153
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Forward-looking statementsCertain of the statements included in this presentation about the Company’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely”, “potential” or the negative or other variations of these words or other similar or comparable words or phrases, are intended to identify forward-looking statements.
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. 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, the following factors: the Company’s ability to implement its strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with the insurance policies that the Company writes; unfavourable capital market developments or other factors which may affect the Company’s investments, floating rate securities and funding obligations under its pension plans; the cyclical nature of the P&C insurance industry; management’s ability to accurately predict future claims frequency and severity, including in the Ontario line of business, as well as the evaluation of losses relating to the Fort McMurray wildfires, catastrophe losses caused by severe weather and other weather-related losses; government regulations designed to protect policyholders and creditors rather than investors; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; the Company’s reliance on brokers and third parties to sell its products to clients and provide services to the Company; the Company’s ability to successfully pursue its acquisition strategy; the Company’s ability to execute its business strategy; the Company’s ability to achieve synergies arising from successful integration plans relating to acquisitions, as well as management's estimates and expectations in relation to resulting accretion, internal rate of return and debt-to-capital ratio; the Company’s participation in the Facility Association (a mandatory pooling arrangement among all industry participants) and similar mandated risk-sharing pools; terrorist attacks and ensuing events; the occurrence of catastrophe events, including a major earthquake; the Company’s ability to maintain its financial strength and issuer credit ratings; access to debt financing and the Company's ability to compete for large commercial business; the Company’s ability to alleviate risk through reinsurance; the Company’s ability to successfully manage credit risk (including credit risk related to the financial health of reinsurers); the Company’s ability to contain fraud and/or abuse; the Company’s reliance on information technology and telecommunications systems and potential failure of or disruption to those systems, including evolving cyber-attack risk; the Company’s dependence on key employees; changes in laws or regulations; general economic, financial and political conditions; the Company’s dependence on the results of operations of its subsidiaries; the volatility of the stock market and other factors affecting the Company’s share price; and future sales of a substantial number of its common shares.
All of the forward-looking statements included in this presentation are qualified by these cautionary statements and those made in the section entitled Risk management (Sections 17-21) of our MD&A for the year ended December 31, 2016. 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.
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Disclaimer
This Presentation does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitment whatsoever.
The information contained in this Presentation concerning the Company does not purport to be all-inclusive or to contain all the information that a prospective purchaser or investor may desire to have in evaluating whether or not to make an investment in the Company. The information is qualified entirely by reference to the Company’s publicly disclosed information.
No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its the directors, officers or employees as to the accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by any person for such information or opinions. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the attendees with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation that may become apparent. The information and opinions contained in this Presentation are provided as at the date of this Presentation. The contents of this Presentation are not to be construed as legal, financial or tax advice. Each prospective purchaser should contact his, her or its own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice.
The Company uses both International Financial Reporting Standards (“IFRS”) and certain non-IFRS measures to assess performance. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to any similar measures presented by other companies. Management analyzes performance based on underwriting ratios such as combined, expense, loss and claims ratios, MCT, and debt-to-capital, as well as other non-IFRS financial measures, namely DPW, Underlying current year loss ratio, Underwriting income, NOI, NOIPS, OROE, ROE, AROE, Non-operating results, AEPS, Cash flow available for investment activities, and Market-based yield. These measures and other insurance related terms are defined in the Company’s glossary available on the Intact Financial Corporation web site at www.intactfc.com in the “Investor Relations” section. Additional information about the Company, including the Annual Information Form, may be found online on SEDAR at www.sedar.com.