Intact Financial Corporation

Dennis Westfall - VP, IR Charles Brindamour - CEO Louis Marcotte - SVP Finance and CFO Patrick Barbeau - SVP, Personal Lines Alain Lessard - SVP, Commercial Lines Mathieu Lamy - SVP, Claims

Geoffrey Kwan - RBC Capital Markets John Aiken - Barclays Brian Meredith - UBS Tom MacKinnon - BMO Capital Markets Paul Holden - CIBC Doug Young - Desjardins Capital Markets Mario Mendonca - TD Securities

Thanks, Courtney, and good morning, everyone. Thank you for joining us on the call today.

A link to our live webcast and background information for the call is posted under the Investor Relations tab on our website at www.intactfc.com. As a reminder the slide presentation contains a disclaimer on forward-looking statements, which also applies on our discussion on the conference call.

Here with me today are Charles Brindamour, CEO; Louis Marcotte, CFO; Patrick Barbeau, SVP of Personal Lines; Alain Lessard, SVP of Commercial Lines; and Mathieu Lamy, SVP of Claims. We will start with formal remarks from Charles and Louis, followed by a Q&A session.

The others will also be available to answer your questions during the Q&A. With that, I would like to ask Charles to begin his remarks.

All right. Thanks, Dennis.

Good morning, everyone and thank you for taking the time to join us today. Earlier this morning we announced a strong finish to 2014.

Our fourth quarter net operating income per share of the $1.84 was well ahead of last year, benefiting from a benign cost environment, favorable weather conditions as well as our initiatives to improve profitability. From an underwriting perspective we ended 2014 with a full year combined ratio of 92.8% with good contributions from both Personal Lines at 92.7% and Commercial Lines at 92.9%.

2014 was a productive year in that our hard work and at times difficult decisions began to pay off. Clearly we have some help with losses from catastrophes closes to expected level and about half the level of 2013.

In combination these factors led to an operating ROE of 16.3%, much improved from the 11% we reported a year ago. Turning to our two primary financial objectives; 2014 significantly rebound in net operating income per share put our trend back on track with a 13% annual average growth since 2011, above our target of 10% per year growth over time.

From an ROE prospective we target to outperform the industry by at least 500 basis points every year. We have done so by 710 basis points on average in the past three years and based on the most recent industry data at September we have outperformed by 900 basis points so far this year.

When I look at the results we generated in the fourth quarter I am pleased with the broad-based nature of the earnings contribution. Personal property’s performance was outstanding with a combined ratio of 73.6% clearly better than what is to be expected on an ongoing basis.

For the full year this line reported a combined ratio of 89%, slightly better than our expectation. Personal auto’s 93.7 combined ratio was a solid performance for a fourth quarter improved from 2013, reflective of less severe driving conditions and higher favorable prior year development.

In Commercial P&C we have now seen two consecutive quarters where the environment was favorable after a string of difficult quarters. For the full year at 94.2% Commercial P&C‘s combined ratio was close to 10 points improved versus 2013.

Across all lines of business of IFC, an 88.2% combined ratio in Q4 is eight points better than a year ago. In Ontario our process of reducing automobile rates began in early last April and has been focused on existing customers.

In the fourth quarter we filed a 2% rate reduction to reflect the benefits we expect from Ontario‘s Bill 15, which was recently passed. It also reflects the comfort we have with our ability to protect margins in this business, as the government has been proactive on this file.

That being said additional meaningful cost reduction measures will be necessary for the industry to achieve the government’s rate reduction target. Overall we are quite comfortable to grow in this market.

I mentioned last quarter that we expected to improve upon the 1.3% underlying phase of top line growth shown in Q3. Q4’s growth did indeed accelerate to approximately 3% as mid-single digit growth in commercial lines and personal property offset slower growth in personal auto.

We have talked about being an early mover with our 10 point improvement initiative in personal property, while the industry continues to move and as market conditions are firmed and our relative position has improved. Units were down less than a point in personal property during the quarter despite the headwind from our full product changes and reductions.

When it comes to our outlook for the industry we foresee low single-digit growth in personal auto while we expect upper single digit growth in personal property from continued hard market conditions. Commercial P&C has firmed in the past year.

Rate increases at renewal for IFC in this segment were close to 5% in the fourth quarter. The low interest rate environment and minimal profits at the industry level give us comfort in projecting a mid-single-digit level of growth for the industry in 2015 in commercial lines.

Now I realize that this commercial lines outlook differs slightly from that of the U.S. where many are calling for the return to soft market conditions in 2015.

Well I believe it reflects the market reality here in Canada. As for Impact Financial our growth and missions have not changed.

Our financial position at year end was strong with $681 million of excess capital. Our objective is to leverage our underwriting outperformance by reinvesting our capital to expand our position right here in Canada.

Organically I expect growth to improve for a couple of reasons. One the industry outlook is conducive to organic growth.

And two, our multi-channel distribution strategy is actually getting momentum. I expect that we will have a more focused branding approach by end of the year which should allow for a more impactful marketing spend.

We’ve also been very clear that our direct and distributional operations are key areas of focus for growth in the near term. At the same time we expect further consolidation to takes place in Canada and intend to lead on that front.

We are continuing to pursue our strategy to expand beyond Canada in a prudent manner with the objective of building an organic pipeline with meaningful impact in the past 36 months. So in conclusion I am proud of what was accomplished this past year and I want to thank our thousands of employees from coast to coast for their tremendous efforts.

I believe they’ve enabled our company to begin ‘15 in an excellent position, a position that should lead to profitable growth in the period ahead. We recently reached the 10 year mark of being a publicly traded company and today we announced a 10% dividend increase, our 10th consecutive annual increase.

Our track record of value creation speaks for itself, I think as we’ve generated a 274% total return for shareholders in the past 10 years, well above the TSX as well as our peers. So we look forward to many successful years to come as we strive to maintain this track record of value creation.

With that I will turn the call over to our CFO, Louis Marcotte.

Thanks, Charles. Good morning everyone.

I will focus on three topics this morning; our operating results, our lines of business and our balance sheet. As Charles mentioned earlier we’ve delivered exceptional fourth quarter net operating earnings of $247 million or $1.84 per share on a combined ratio of 88.2% compared to 96.3% in the same quarter last year.

Weather was clearly a factor, warmer temperatures were observed across the country. We incurred lower cat losses and we’ve seen lover frequency in all our businesses.

But our own profitability initiative, particularly in property line paid off as well as rate and product changes helped drive our overall underlying current year loss ratio to 62%. This is the best fourth quarter showing in the past five years.

On a full year basis we reported a 92.8% combined ratio despite having experienced a challenging first half of the year and a fair level of cat losses. Strong underwriting results in the quarter were further complemented by healthy investment income of $111 million.

This income reflects a higher level of invested assets on the back of strong operating cash flows. We expect the continued low yield environment to pressure our investment income in 2015 making it difficult to match the level recorded in 2014.

Net distribution income in the year was $75 million, unchanged from 2013. We maintain our $100 million target of distribution income in 2015 as we continue to grow and support our broker channel.

On the expense side better underwriting results in the quarter drove variable commissions higher offset by savings and general expenses resulting in a slightly higher expense ratio compared to the last year. For the full year the expense ratio improved close to one point to the 30.1% driven primarily by savings and general expenses.

Moving on to lines of business, personal auto premiums increased 1% in the quarter, including the mandatory rate reductions taken in Ontario, which impacted both premiums and units. The combined ratio improved 4.7 points from Q4 last year, despite $13 million lower profits from pools.

Favorable year development was higher in Q4 but comparable to historical levels on a full year basis. The underlying current year loss ratio of 73.5% improved three points year-over-year driven largely by lower frequency.

As Charles mentioned we recently filed an additional 2% rate reduction in Ontario in anticipation of savings from the recently passed Bill 15 as we pursue growth in this market. Personal property premiums grew 4% in the quarter as rate increases initiated in November 2013 under our home improvement plan more than offset the small decline in units.

Now that we have completed one renewal cycle we expect rate increases to moderate going forward. All initiatives under our improvement plan have been rolled out and we estimate that the benefits were roughly 70% earned in the fourth quarter.

Our combined ratio for the latest quarter was a remarkable 73.6% and led to a full year combined ratio of 89%, both significantly improved from 2013. On the commercial side, auto premiums were up 9% year-over-year as we successfully acquired a number of large accounts.

The commercial P&C business saw good top line growth as well thanks to firming market conditions and the completion of our efforts to reduce earthquake exposure in BC. In terms of profits, we experienced some quarterly volatility in commercial auto, leading to a combined ratio of 99.5% in Q4, one point better than last year.

On a full year basis, the combined ratio improved four points to 89.6%. In commercial P&C lower frequency of frames and our actions to improve profitability paid off as we reported a strong combined ratio of 87.1%.

Our actions which were initiated in mid-2014 after reporting five unprofitable quarters are two reasons to be considered fully responsible for this quarter’s strong combined ratio. Like commercial auto the full year combined ratio of 94.2% is more reflective of the true performance of this line of business.

We will continue with our commercial P&C action plan with the goal of running this business in the low 90s on a sustainable basis. Finally a few comments on our financial strength; our investment portfolio was of high quality and well diversified.

The asset mix includes recently added U.S. exposure being 12% of our bond portfolio and 17% of our net common share portfolio.

We believe that the benefits of the geographic and effective diversification as well as maintaining currency exposure on the U.S. common shares outweigh the slightly lower yields on U.S.

securities. The portfolio generated net investment gains of $48 million in Q4 before reporting $51 million of impairment losses.

Such impairments do not impact our operating earnings nor book value as the assets are mark-to-market. Of the impairment approximately two-thirds were related to the energy sector and as a reminder only 6% of our total portfolio, net of hedges is invested in energy securities.

We maintained our strong financial position at quarter end with an estimated MCC of 209%, $681 million in excess capital and debt-to-capital ratio below our target. Our book value per share increased to 11% in 2014 primarily on growth of operating earnings.

Our adjusted ROE reached 16.8% for the year, including the impact of carrying substantial excess capital. We are clearly in an enviable position to pursue growth opportunities.

On the basis of our balance sheet strength and earnings power we are increasing our dividends by 10% to $0.53 per quarter which represents a 12.5% annual growth rate when considering every dividend increase since the IPO in 2014. With that I’ll turn the call back to Dennis.

Thanks, Louis. Courtney we’re now ready to take questions.

Hi good morning. Just had a couple of questions, first-off in terms of your investment portfolio and the investments in the energy space, I believe you do some kind of total returns spots and the like just wanted to get a sense as to the variability that we’re seeing in the energy markets and what that impact might be on the investment book?

So on that first question, as we mentioned 6% of the overall portfolio is in the energy sector. So that includes bonds, spreads, government and what we call energy includes pipeline infrastructure, oil and gas producers as well as integrated.

Maybe Louis you want to add some color there?

No, that’s exactly right. So it’s important to notice that we’re not that heavily invested in the producers which are more likely hit, and important as well when we talk about the total return swaps that you net out the gross exposure.

So we consider 22% of our net equity portfolio to be invested in energy and that represents a bit north of $350 million a year. And because we are invested in high quality companies, not so much in the producers, vary between pipelines, infrastructures as well that the volatility is not as important as we see.

There is no high yield securities in the portfolio. That also limits the impact for us.

Okay, and just the other question I had was with the kind of expansion with Berkshire and CNA, from what they would regard in Canada just wanted to get your sense or your thoughts on what that might mean and whether or not they may also look to go further into Canada and have that impacts how you run your business?

I will let - both Berkshire and CNA are operating in upper and commercial lines as well as specialty lines. I’ll let Alain comments on their presence.

Yes. Well, I think you hit the first point which is, if you look at their license and Berkshire ratably, they are look for licenses not only in Canada, but in other country and their target is international and large, very large accounts, which is not necessarily the space where we operate mainly since we focuses more on small and mid-size account.

That being said we live currently in a very competitive environment. Adding another competitor and they are in general disciplined competitors.

While we think we have sufficient and we have the competitive advantage to face that competition, we have like the largest database in Canada and we have all the expertise and the capacity to exploit that database. We have a very good service, both in terms of clients, customer and broker.

We have a very good support of our broker going forward. Our supply chain is well managed and all of those advantages are not easily replicated, easily to replicate.

So we think we have the competitive advantage to face any of those competitions coming in. But as I said, they’re moving in a space where we’re not really present.

Yeah. So I think the bottom-line is that if Berkshire sees value in Canada, I’m glad with that perspective.

Okay. Thank you.

Good morning. I guess just a follow-on question to that.

Charles what are you seeing at both the distribution landscape about the potential entrants and possible disruption in - along those lines?

Well, I think there are important changes in distribution taking place in the near-term and we think there will be even more important distribution changes taking place in the mid to longer term. And we’re clearly focused on managing the business with the mid and longer term in mind.

And that’s why as I’ve mentioned in my remarks and as I’ve mentioned at the Investor’s Day, you can expect our brand architecture to become more streamlined and stronger and you can expect our distribution platform to become more diversified precisely to prepare against these threats. The other theme that we’re putting lot of emphasis on is digital leadership.

We want to make sure that the interactions with our various business units, be it BrokerLink Intact insurance or belairdirect is leading when it comes to digital experience. So that being said, I mean they are - we are seeing in the near-term certainly different patterns and different regions, but companies spend to reach out in other channels.

You can think about the acquisition that was announced last year by one of our competitor in Quebec that’s actually expanding its reach in the side agency distribution. They involved in broad distribution and in pure distribution like we are in the West of the country.

For us that’s a very concrete example of branching out other than your core distribution network because at the end of the day, I think consumers you want to make sure your product is available to consumers regardless of how they want to do business with you and we think that many of our competitors are headed towards that direction. So I think this though is just people branching out in existing modes of distribution today.

So that's the short term and I think we're well ahead of the parade there, given our multi-channel distribution platform. I think the bigger play is what happens three, four, five years from now or maybe less than that when you have big technology players who are not in the market today, who have strong brands, who have a very good understanding of consumer behavior, who have agile technology, come in and start disrupting how the business is distributed.

We've not overly concerned about disruption in manufacturing per se, given our position, but certainly when it comes to distribution, it's fair to expect a disruption. We've seen that in other markets and while there are number of barriers in our market, I think overall we're getting prepared for some disruption and I would say, I would put at the top of the list big technology players here.

Great, thanks Charles and if I can just tag in quickly for Louis, the distribution contribution which is a net number within your sub pack dropped, or the commentary was related to some accruals. Can you give us some additional color around what was driving that?

Yeah, I would say the quarter four is one where distributors accrue their respective CPC. So when in 2015 - profit share variable commissions I mean.

And so in 2013 they had more and a bit less than 2014. So there is a gap that actually looks like a reduction, but it's really I would say conservatisms on the part of how they accrue for the expected profit share or variable commissions during the year.

That is in our view sustainable, it's a bit seasonal in the distribution sector. So it's nothing that we think is sustainable, it's just a quarterly volatility.

Great, thanks Louis.

Yeah, good morning everybody. Couple of questions here.

First one, Charles and Louis wonder if you could kind of dive in a little bit more into what's going on, what’s kind of the underlying loss trends? What should we expect here going forward?

I know you said commercial, I think the annualized numbers are better one and then when we are looking on a quarterly basis, is that the same for property and auto lines given the favorable weather we had in the quarter?

I think, if I just think of aggregate picture of the results, all lines combined, you see the combined ratio improve by eight. There is about four points of cat and that is clearly biased towards the property line.

So a portion of the improvement in personal property and commercial P&C is cat driven. And as such one has to take that into account as you think forward.

You leave that aside and you look at the current accident year performance which improved by about five points, I think of that in three ways. The first way and probably the most important one is the fact that our corrective measures have brought in aggregate close to three points of rate increases, if you think all lines combined and roughly what these numbers are by line of business.

But a big portion of the current accident year performance is actually driven by corrective measures. This has been helped from our perspective pretty much across all lines by a stable cost environment.

And by that I mean you see frequencies dropping in all lines of business. Some lines more than other but all lines of business.

And I think beyond frequency, we're operating in a fairly stable cost environment. There are many things that we do in particular in claims and underwriting, that are not part of the corrective actions that we're talking about that are aimed at improving the [indiscernible] cost inflation.

And if I look across the business in Q4, I mean there is been, even though frequencies have dropped, there is been no inflation in this system. Not really when you see a drop in frequency it often comes with a pickup in severity.

This time around we're seeing zero increase in severity across the book. So I think that beyond cash it's not all about weather.

I mean corrective measures are an important portion of the equation and then stable cost environment is part is influenced by what we're doing is there. But the fact that we're seeing frequencies drop across all lines of business certainly add weight to the fact that we have had a milder Q4 with less precipitation.

Got you so it sounds like a better point or two is may be due to just the favorable weather, if I add up what you are saying?

Yeah, as you know this is hard to put your finger on it but…

Right, on the severity you did mention that you had some severity issues in the quarter in the commercial auto. Can you dive into what exactly that was?

As I recall there were some issues in the fourth quarter ’13 as well.

Yeah, so I will let Alain Lessard, our SVP Commercial Lines talk about the commercial auto severity.

Well, if you look at the commercial auto combined ratio in the quarter at 99.7 there is a lot of volatility quarter-to-quarter. In this quarter there was as we review our reserve on a quarterly basis there was an adjustment that related and generated about six point adjustment in the quarter.

That adjustment was booked in the quarter but relates to the full year and this is what has driven the severity up. If we eliminate that adjustment the severity is about 2.5 increased.

Current year loss ratio would have been six points better than last year reflecting better weather and current situation. So we go back saying that the way we look at the profitability of this line is very much on the basis of the annual results of 89.6 and basically the 99.7 it’s just kind of a blip related to adjustments.

And for the sake of clarity Brian when you do an IDR adjustment on the current accident year it shows up that severity.

Yeah, that makes a lot of sense. And then just lastly quickly we had a bunch of snow down here recently.

I am wondering if you guys experienced the same up there and any thoughts on kind of weather activity so far in the first quarter on losses.

So Canada tends to experience snow, Brian that’s part of how we live. It - I haven’t looked at the weather stats compared to last year and the year before.

If we look at claims activity - Mathieu, just at the operating level anything abnormal that you want to report.

No, I would say we have a normal January, it’s a winter month, but…

Clearly there is seasonality but we are not coming to the office with our shovels.

Understood, thank you.

Yeah, thanks very much for that, the comments there. I guess it wouldn’t be an Intact conference call if we didn’t ask what your thoughts were on the potential acquisition environment and may be some global observation platforms as well, if you can just elaborate on that please Charles, and then I have a follow-up.

So with regard to the Ontario automobile market when you said this wouldn’t be an Intact call, no I think that our view has not changed one bit there Tom. I think we are still pretty - clear that we will see 15 point to 20 points of market share change hands.

I think the combined ratio at the industry level certainly points in that direction, in particular with further compression on investment income. I think that the changes we are seeing in distribution as well and at the distributor level and the repositioning that is taking place from my perspective is another indication that at the manufacturing level you will see further consolidation.

So, I think everything points in that direction as well. I think capital requirements are still shifting.

I mean there are capital requirements taking place and our industry happens to be very good for us. There are capital requirement shifting for banks, capital requirements shifting globally as well and I think this adds to our view that there will be consolidation.

And a follow-up on the commercial lines, you said you will be looking at working towards your goal of low 90s. And I think you had said in your - look may be more at the annual 94 something and so there is still some room to go.

I think you had said at the Investor Day that you are looking at an eight point combined ratio improvement by 2016 in commercial lines. I think you can get 40% of that improvement in 2014, 40% in 2015 and the rest in 2016.

So should we really look at a continuation of the trend of probably in the area of few point underlying combined ratio improvement in the commercial lines in 2015 and may be little bit more in 2016, if in order to kind of hit that forecast that you had indicated at the Investor Day, do you still kind of stand by that?

Yes, I think the numbers you quoted were pretty much in line with what we see it right now. We have about - so far earned a little bit about three points and we still have something like about four points to go.

So basically we are still aiming at low 90s. We don’t consider 94.2 as being low 90s but we still have a few points to go in 2015 and probably some little things left also to be earned in 2016.

So I think we pretty much stand with what you quoted.

Obviously that’s not on a - that’s on the entire reported basis, that’s the way we should be looking at that with a normalized cat, is that how we should be looking at that number then?

Yeah, I think that’s right, yeah.

And then without the - then the question actually becomes would it be normalized cat and that kind of thing, and that kind of business, but I assume they have got to be somewhere around two points on the combined ratio will be more normalized cats for the commercial lines, is that the way to think of that?

I think we might have to come back on this one. I don’t want venture into a cat normalization for what are four lines.

I think Tom, 94 is getting close to the zone as far as I am concerned and - but I mean if you look at the performance of that line of business, 94 is made up of 106 in Q1, 101 in Q2, 85 and 87. So if I look at the work that the guys in commercial lines have done, what we have seen in the past six months, I feel pretty good about our ability to be in the low 90s, next year.

Might be worth spending 30 seconds Alain on what is in the pipeline in terms of corrective measure at this time.

Yeah, basically you know our plan ends on four elements. The first one is rate increase at renewal and we have been pushing rate increase to the tone of about 5% this year and that’s on top of something close to 2.5%, 3% last year.

That’s both 7.5% cumulated since two years. Those rate increases at renewal are pretty much segmented and to give you an idea of the segmentation like the worst 3%, 5% is getting the high double digit increase.

The next 20% is getting pretty much 10%, 15% increase and the rest of the book is getting minimal increase. So it’s very much segmented approach.

We spend a lot of time on managing I would say tail exposure. So we have reduced our earthquake exposure and the costs associated with that.

That is beyond doubt pretty much done by the end of the - it’s done by the end of the fourth quarter this year. We have also invested a lot in managing flood exposure through geo mapping.

So I think we now have and we presented that at the investors day, but we have now very good math that give us the elevation of the risk compared to the body of waters [ph]. So we can look at not only the distance to water but also elevation.

We have adjusted the price according to it. And we have invested a lot in segmenting our new business pricing, through a new algorithm.

The GLM algorithm was implemented in July last year and the property algorithm will be implemented by the end of Q1 this year. So we think that those force factor combined together are really generating the plan and the necessary action to get back to the low 90s.

Thanks Alain and I think that may be to add to the context here Tom, when you speak with operators in the insurance business and you talk about the state of the market often you will hear about the last, that tough market example the last anecdote, and while anecdotes are interesting we tried to look at broader basis of data and for me there is two data points that I track to assess the state of the market. The first one is our closing ratio.

Our closing ratio is basically the number of clients in commercial lines that we sell in relationship with how often we quote. And to put things in perspective at the start of the year in Q1 we sold one policy for every three quotes basically, a little less than that.

At the end of year we're closer to selling four policies for every 10 quotes. In other words all that while we're doing what Alain has just described.

So for me that's a clear sign that there is something happening in the market in the right direction. The second key metric that I like to keep an eye to put in perspective the anecdote is how much of the business we're retaining.

So Alain is talking about rate increases close to 5%. Our retention between the start and the end of the year is up a couple of points, which sort of add to the closing rate picture.

For us to say what we're doing what we think is right in terms of getting towards the low 90s and the market seems to be absorbing that positively. So I think we will keep clawing in 2015 and hopefully get into low 90s.

Okay, thanks for the color.

Thank you, good morning.

Good morning Paul.

So your 2014 results was the 16% ROE and a 93 combined plus a lot of what your messaging signals that we should expect the growth and the number of insured risks to start accelerating from here. So I want to ask two specific questions on that.

I guess first is how do you feel about rate adequacy and growth prospects in personal auto outside of Ontario? And then secondly sort of same question on personal property but then inclusive Ontario?

I'll ask I think Patrick Barbeau, SVP, Personal Lines to give you some color on that.

So if I start with the auto piece outside of Ontario, I think from the west we've seen in the past couple of years more activity on the BI side. We recognized it early and we're at ease with where it's going on the bottom line, but that put some pressures up on rate.

Hail, storm in Alberta also it's that pushing some pressure upward on rate. So we expect upward rates to continue for a while in the west.

If I look at the Quebec situation the rates have been stable and results as well for many years. So that's probably more flat outlook.

And in the Atlantic although it's small in terms of rate and volume this is also somewhat upward from the rate perspectives. Units though overall in all of those regions are fairly stable and but we believe we're in the good position to grow.

On the property side, the hard market conditions are likely to continue for other 12 or 18 months. We've had outperformed the industry at the end of September by more than eight points in that line of business.

So it's clear that some of our competitors still need that corrective actions. Our own rates will continue to go up because of the unwinding of the cat but to as overlap extent than what we observed in the last 12 month.

And that situation on property is pretty much the same across the lines.

Good. Thank you.

I think Paul. I don't want people to think that growth will explode here.

There is clearly a change in trajectory, the way I've sort of put on the call in Q3. And again if we go back to data and just look at insured risks growth this year, we started Q1 with a unit shrinkage of 1.2%, moved to Q2 with a unit shrinkage of 1.1%, Q3 we shrunk by 0.9% and Q4 we're growing by 0.4%.

So I think you see that there is a trajectory there, we're not talking about double-digit growth there, but certainly operating in an environment that's more conducive to some of the things that we're doing on an organic basis.

So all right. I wouldn't be expecting double-digit growth but how it's sort of mid-single digit type growth which would be a big change from what we're seen over the last 12 months.

That would be a big change from what we have in the last 12 months.

Okay fair enough. With respect to investment income you’ve provided some guidance at the investor day which suggested it should be relatively flat in 2015 versus 2014.

Yields have come down, surprisingly large amounts since then. So should we be expecting now probably lower investment income year-over-year?

I would say so compared to what we had in 2014 slightly below.

Okay very good.

So just and not be low but especially what we won’t reach the levels of 2014 as we see it now.

And in terms of commercial P&C if you look back at that string of, I think it was five consecutive quarters of unfavorable results and at the time or at least for the first two years you’re sort of saying it looked like it was bad luck there’s no common factors that cut across all the quarters if you go back to those quarters now would you still have the same conclusion that it looked like it really was just bad luck?

I think Paul there were a couple of factors that showed up to influence these poor results. One was cat, and the other one was an abnormal level of large losses.

I think our point was that it was difficult to establish a root cause for these large losses to an extent. So just providing some color on that basis and I’ll ask Alain to give his perspective because I expect he thinks about that a lot.

Well I think with historical pattern that’s shown is that we’re subject to higher level of volatility than some other line in commercial lines and in fact when you look at commercial P&C it’s made up of all sorts of lines. You’ve got surety losses there, you’ve got basically marine business, you’ve got P&L business as you’ve got your commercial profits and liability regular business and that’s what we saw in the last quarter.

The sources of the variation was coming from all sorts of different clients. So I think that that’s what I said, when we look at the overall perspective and we look at the establishing the profitability of that line of business we never focus on a single quarter but looks abnormal even more than one year and adjust for trends and things like this.

So I think when we look at the string our view that we were operating slightly higher than our, I would say, expected target or target of loan I need and we needed an action plan, for me it’s still the case and we’re continuing on the action plan. But I see that we were subject to what I would call normal volatility in the results.

You may call that luck but I would call that that’s normal volatility from quarter to quarter of the results.

Yeah it’s just that when you have normal volatility five times in a row in the wrong direction you stop doubting and you put some action in place. But the view has not changed and I go back to my perspective on our ability to carry on with our action plan and what it does to the top line closing and retention and new business production, the market can absorb it.

So in my mind we’re at 94%, interest rates are coming down, the industry is losing money we keep doing what we’re doing.

Okay and then finally it’s been just over a year now since you launched your telematics offering. So I think it’s probably fair to start asking some questions on that.

What have you learned over last year as the analytical predictability that comes at the telematics is powerful as you would have thought, is less powerful and what kind of penetration are you getting through the broker channel versus the direct channel?

All questions are good. I’ll ask Patrick to comment on our perspective today.

So we’re now offering our UBI program in Ontario and Quebec, both channels as well as in the New Brunswick, in the broker distribution. The plan is still to launch again in Alberta and Nova Scotia later this year.

So far both channels together we have more than 60,000 clients enrolled in the program that represents more than 250 million kilometers driven by those clients. So we start to have a good data base to analyze and confirm as you said how predictive it is and we are very happy with the way it’s going, the predictiveness of those new information that we gather are in line with our expectation off course there will be adjustments on the road as we dig into those data.

From a take rate that’s picked up more quickly in the direct channel, when offered the take up is in the above 80% but if you look globally on our new business it’s around 50% of our new business in the direct channel that go for it. In the broker it’s a bit lower because not brokers are as corrective as some others in offering it but it’s accelerating right now and we are close to 20% in the brokerage channel as well.

So Paul, I mean this is a higher take up then I originally anticipated in your number, first. The reason we haven’t launched in Alberta is because the regulators are not ready to see you be eyeing Alberta just yet.

We are looking forward to do it because consumers benefit from it and ultimately that’s why we are doing it. And then I think we are learning to deal with the massive amount of new data coming our way.

I would say that it’s one thing to work on predictability it’s another thing to create agility with such a new source of information. And I would say that’s focus number one right now but that being said so far so good.

Thank you very much for your answer and your time.

Thank you.

Hi, good morning and I will be the guy with Ontario, lot of questions, gentlemen.

I would have been disappointed you if you wouldn’t.

I didn’t want to let you down. So Ontario audio you stated you the cut rate 7.3%, you mentioned further rate cuts have to be accompanied by further cost reduction by the government.

So what I am trying to understand is what are those additional cost adjustments are you anticipating and I guess I am kind of taking the big picture here. So if there is a no further cost reductions that are implemented can you just not reduce rates by a full 15% just trying to get a sense on how to think about that?

Let me start with the last part of your question I will ask Mathieu to talk about some of the cost reduction measures in the pipeline and some of the customer reduction measures that we think will come. The industry is running on a combined ratio 100%, Ontario auto, nine months in to the year, with the reforms that have yet to take hold.

So it’s pretty clear especially as interest rates decrease that you won’t get to ‘15 if there are not more cost reduction measures. I think, it’s clear at the macro level and I think the government gets that.

That’s why we feel there is momentum and a certain amount of correctivity in terms of coming up with more meaningful cost reduction measures. On that I’ll ask Mathieu to comment on what these could be?

So first Bill 15 introduces mainly three things that could help us control the cost, the prejudgment interest is lowered as of Jan 1st and we are expecting a reform of the DIS, the Disputed Solution System and regulation on the [indiscernible]. So those three things will help us reduce the cost.

This is in the pipeline, prejudgment interest is effective right now but last two we expect to have the regulations towards year end this year, that should help us. We are also discussing in conjunction with IBC and government what could help us going forward on the external benefits and on the voluntary coverage, reduce the cost.

In accident benefit we are talking about a new definition of the cat impairment, what could that be, could we go back to what it was before the case that weakened that definition. We are talking about shortening the med benefits from a 10 year program to four year program which is the case in most jurisdictions in Canada and introducing a psychological component in the minor injury guideline.

That’s on the AB side. And on the BI side we are talking about removing the fact that the deductible disappears.

So keeping the deductible in our case at 30 K, on the general damages and reducing the fees that are allowed to be recovered on the BI side. Those are some of the measures we are discussing right now to provide further relief on the rate front.

And so there is a sense that the government understands that more needs to be done for you to get the full 15%. So and the reality in the situation I portrayed where the government doesn’t do anything and you still reduce the rates only 7.3%.

That’s a very low probability would you say?

Yeah, we get a sense that they understand that they need symmetry on the cut side too and on the premium side.

I think they get that.

Okay. And then just getting to the end of the hour here but the other another question that I wanted to ask Charles and again bigger picture your reserve development, positive reserve development has been running consistently about 4% to 5%, sometimes a little bit higher than that over the last while and obviously since you did the exit transaction.

Should we be thinking about reserve developments now in the 4% to 5% range versus your historical 3% to 4% and if not why not?

Yeah, I think there is no structural reason to start thinking about reserve development above the 4% range. I think that we stick by our perspective of historical or pattern of 3% to 4% in part driven by the fact that we use provision for adverse deviation and reserving in line with the Canadian institute of Actuaries guidelines and we try to be cautious in how we reserve.

But there is no structural reason to think about a higher favorable development pattern. Clearly there have been contributing factors to a higher pattern in the past few years, obviously when reforms pan out to be better than what we anticipated, as you settle claims your caution flows through favorable development.

We have seen that for a few years here so that would push us above historical pattern. Clearly the acquisition of AXA was an outstanding acquisition, and as I had mentioned early in the process the balance sheet was stronger than what we thought and what that means.

In fact you said that the reserves were stronger than what we thought and that’s certainly helped go above the historical pattern of favorable development and a few other factors of that nature. But overall one shouldn’t plan for necessary much more than what we have been guiding to in the past.

When it’s above that that’s good we are happy, but that’s not our plan.

And sorry, I lied, I want to just kind of go back to Ontario auto for additional thing, just the definition of what constitutes a cat accident. I mean that’s been going for a long time and our - feels that [indiscernible] and the government we have created new definition, doesn’t seem like that file has moved forward.

Are we to a point where you think we could be breaking through on that particular issue?

Yeah, I think that it’s one third of incurred losses and accident benefit. So if you want to move the needle and you will have to get down to business on these things and I think they do want to move the needle.

They realize that there is a lot of excessive - they have been leakage in terms of what is deemed catastrophically injured. The objective is to protect the victims that need it the most.

But to make sure that this definition indeed sends the money and the indemnity towards the victims that need it the most and those that don’t. And I think the government clearly understands that.

I think that they are thinking through how - I suspect they are thinking to how they can do that in a way that will protect the victims properly which is clearly our objective as well.

Okay, thank you very much.

Everything was covered there. Thank you very much.

Thanks Mario.

Thank you everyone for participating today. The webcast will be archived on our website for one year.

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Please note that we'll be hosting our annual meeting of shareholders and releasing our first quarter results for 2015 on May 6th. That concludes our conference call for today.

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