Intact COO talks about M&A preferences for Canada

When considering future mergers and acquisitions (M&A) opportunities in Canada, firms offering insurance product manufacturing and distribution remain “the number one priority” for Intact Financial Corporation, chief operating officer Patrick Barbeau tells a March 25 fireside chat.

That’s “followed closely by global specialty lines. And that means U.S. in particular, but also because of our global capabilities, [the] U.K. and [Ireland] or Canada,” he says during the National Bank of Canada Capital Markets’ 24th Annual Financial Services Conference.

Barbeau says the current M&A environment is more active than in the past 12 to 18 months. “Our approach to M&A has not changed…first it needs to be a good strategic fit,” he says.

“We’re looking for assets that have a very good overlap with what we’re already doing in the geographies [where] we operate. We’re not about trying to plant flags in more geographies…we would look for assets that have a good overlap with the lines of business we’re already in.”

He adds both large and small firms may be reviewed for M&A, and that Intact does many smaller deals, particularly in distribution – citing BrokerLink’s recent deals.

There’s also interest in managing general agents (MGAs) “in the context of specialty lines.”

Referring to Intact’s current balance sheet and excess capital, Barbeau says the company “could deploy around $5 billion in acquisition before issuing shares…we could issue shares on top, but it gives an idea of how much dry powder we have.”

Tech-based drivers

In Canada, he tells the conference, Intact’s been deploying technology with brokers that simplifies the quoting process – allowing them to make more quotes, and do it faster to create larger volumes of new business.

He notes the artificial intelligence (AI) evolution is underway and that companywide, “we’ve implemented more than 600 AI models within our system, at scale and in the operations.” He adds that’s currently creating recurring annual benefits of around $200 million – and the goal is to get to around $500 million by 2030.

First priorities are to deploy AI to improve the loss ratio, and in pricing segmentation and claims. “When we automate decisions and underwriting and claims, we do it with by leveraging the specific and very precise view of the profitability of every policy,” Barbeau says.

The next AI priority is boosting the top line with investments that improve customer journeys. And the remaining priorities are software engineering and efficiency.

Looking at the company’s structural drivers of return on equity (ROE), Barbeau says an evolving mix of business, specifically growth in commercial and specialty lines, has changed Intact’s portfolio over time.

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“These lines of business are producing higher ROE on average, not only now but if you look at the longer term. So that’s creating a shift in the business,” he says.

Related: AI disrupted UK’s personal lines distribution. Why Intact exec says it won’t happen in Canada

And, in terms of introducing technologies, he tells the conference AI and pricing sophistication models were initially used in in personal lines. “We’ve been deploying these models into commercial lines and specialty lines – and also outside of Canada – and we see that it’s producing at least the same kind of benefits in improving the combined ratio.

“That’s another reason we think the [company’s] ROE is in a new zone and more structural than cyclical. We don’t really worry about cycle, because our pricing decisions are made at the policy level. Yes, we want to make sure we cover inflation, but then the final decision of writing risk or not is at the policy level. And our underwriters have these indicators on their screen[s]. They know the walk away price.”

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.