Intact Financial Corporation

Samantha Cheung - Vice President, Investor Relations Charles Brindamour - Chief Executive Officer Louis Marcotte - Senior Vice President, Finance and Chief Financial Officer Patrick Barbeau - Senior Vice President, Personal Lines Alain Lessard - Senior Vice President, Commercial Lines Mathieu Lamy - Senior Vice President, Claims

John Aiken - Barclays Tom MacKinnon - BMO Capital Shubha Khan - National Bank Financial Geoff Kwan - RBC Capital Markets Paul Holden - CIBC Doug Young - Desjardins Capital Brian Meredith - UBS

Thank you, Mike, and good morning, everyone. And welcome to our second quarter 2015 earnings call.

Thank you for joining the call today. A link to our live webcast and background information for the call is posted on our website at www.intactfc.com, under the Investor Relations tab.

As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also apply to our discussion on this conference call. Joining 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.

With that, I would like to turn the call to Charles to begin his remarks.

Thanks, Samantha. Good morning, everyone, and thank you for taking the time to join us today.

Earlier this morning, we announced our second quarter net operating income of $210 million or $1.56 per share. We generated strong growth, while improving our underwriting performance with a combined ratio of 91.6%, more than 1 point better than in the same quarter last year.

In the current low interest rate environment, our investment team did a good job of generating $104 million of investment income, largely in line with last year, while staying within our risk appetite. This combined with our improved underwriting performance, help grow our book value per share by 8% from a year ago and generate an operating ROE close to 17%.

Our performance continues to be industry-leading in terms of ROE, as demonstrated by our 700 basis points outperformance at the end of Q1. This certainly should continue to support our objective to grow our net operating income per share by 10% per year on average overtime.

As I mentioned, we had strong direct written premium growth, driven by all lines of business, delivering a 6% increase including 1 point from our recently closed acquisition of Canadian Direct Insurance. Our initiatives to grow the business organically are paying off as well.

Our recent product launches, new marketing campaigns and a number of improvements in the digital experience for our customers, all help us set pressure from declining rates in automobile Ontario. While this is a good quarter, we expected slightly stronger underwriting performance, given the low catastrophe activity and healthy support from prior year claims development.

The deterioration in the current accident year was in large part driven by a prolonged winter in Atlantic Canada, impacting both personal and commercial lines. We obviously don't see this as a deterioration in the underlying performance of the business.

So let me give you perspective on our business now. In personal auto, with a combined ratio of 90.3%, we grew our premiums by 6%, including CDI, given a number of improvements for our clients as well as a better competitive landscape.

Favorable development on prior year claims offset an uptick in frequency, driven mainly by an increase in small claims. So no concerns there.

When it comes to the industry, we expect it will continue to experience slightly negative growth in personal auto. Rates are variable across the country with premiums increasing in Alberta and Atlantic, remaining fairly stable in Quebec, while decreasing in Ontario.

We believe rate reductions in Ontario should continue to be in line with government cost reduction measures. Today, the industry has decreased rates by 6.1 points in Ontario, and we expect further rate decreases in 2016 from auto reforms introduced in the latest provincial budget.

Our interpretation suggest that they will produce 3 points to 5 points in net cost reductions. We expect to continue to be in a strong position to pursue our growth ambitions in that market.

In personal property, we grew by 8%, including CDI, in hard market conditions. We rolled out new products, such as our Lifestyle Advantage.

And our relative competitive position continues to improve, given our early rate actions in this market. As mentioned earlier, our combined ratio of 92.7% in that line was negatively impacted by snow storms in Atlantic Canada, continuing well into April and May.

So overall, our view on the personal property market has not really changed, as we expect the industry to experience upper single-digit growth. Our home improvement plan is now fully implemented, and this in combination with ongoing initiatives, should allow us to continue to outperform the industry in that line.

So let's look at our commercial lines of business now. In combination with a firming commercial P&C market, our actions generated a 4% growth in premiums.

From a profitability perspective, commercial P&C had a strong 9 points improvement in combined ratio to 91.8%. We had higher customer retention and stronger new business activity.

So environment continues to improve and we expect to see mid single-digit growth at the industry level. In commercial auto, we grew premiums by 6%, driven by good performance in regular lines as well as in trucking.

That said, the loss ratio worsened by close to 10 points during the quarter, due to a number of one-offs, including large losses, leading to a combined ratio of 94.4%. While the industry remains quite competitive in commercial auto, our value proposition is gaining traction.

We ended the quarter in a solid financial position with $564 million in excess capital, after completing our successful acquisitions of CDI. This is a clear example of reinvesting our capital to support our growth initiatives.

Our integration efforts of CDI are underway and should be completed within 24 months. This in no way will interfere with our ability to pursue other consolidation opportunities in the near-to-mid term.

So 2015 is quite a busy year for our employees from coast-to-coast, as we rollout new products, new technology interfaces, as we streamline and invest in our brands and continue to consolidate both distribution and manufacturing, so as to build an experience that's second to none for our customers. So on that I'd like to highlight the efforts of our claims team, who grabbed the top position in J.

D. Power's latest Canadian auto claim study.

In conclusion, while our performance was good this quarter, we're not spending still. We continue to execute on a number of robust initiatives to ensure we outperformed the industry ROE by at least 500 basis points every year, and grow our net operating income by 10% per year on average overtime, as we've demonstrated in the past.

With a competitive landscape conducive to growth, a strong financial footing and a talented group of people from coast-to-coast will do make a difference. We are confident with our prospects for the second half of 2015 and beyond.

And with that, I'll turn the call over to our CFO, Louis Marcotte.

Thanks, Charles, good morning, everyone. Our topline growth accelerated in Q2 to 6% on an underlying basis and 5% on an organic basis that is excluding CDI.

All lines and all regions contributed to this growth, with a good mix of units and premium increases. Underwriting income grew 23% in the quarter with a 91.6% combined ratio.

Our profitability initiatives had a positive impact on our results, but we also saw higher favorable prior year claims developments, lower expenses and cat losses, which fortunately offset the impact of a long and severe winter in Atlantic Canada. The impact of this long winter is estimated at 1.4 points of combined ratio, all of which hit the underlying current year loss ratio.

Net investment income was stable at $104 million, as the benefit of incremental investments was offset by lower yields. We expect net investment income to be relatively constant going forward.

On expenses, we lowered the ratio to 30.7%, mainly on reduced variable commissions. Net distribution income in the quarter grew 13% to $34 million, due to the expansion of our distribution operations and its higher profitability.

We remain on track to hit our run rate of $100 million in distribution income in 2015. The tax rates of 21.7% is 7 points higher than the year ago, when we benefited from the resolution of specific tax files.

When excluding this item, our net operating income per share growth in Q2 this year would have been 9%, a better reflection of our actual results in the quarter. Let me add a few comments on our underwriting results.

The personal auto business delivered strong organic growth of 4% on a 5% increase in insured risks. Our investments in our brands and in digital experience, combined with favorable market conditions have been instrumental in driving unit growth across the country.

Our combined ratio showed a 1.2 point improvement in the quarter. On one hand, prior year development improved 4 points from last year, which was unusually low.

On the other hand, the higher underlying current year loss ratio reflects an uptick in frequency, mostly driven by an increase in small claims. Overall, a good quarter in personal auto.

In personal property, we also saw solid organic growth of 6% on rate increases and 2% unit growth. This is a nice turnaround from last year's unit losses.

We also improved the combined ratio to 92.7%, despite absorbing 2 points of negative impact on the severe winter in Atlantic, Canada. On the commercial auto side, our combined ratio deteriorated 15 points to 94.4%, due to higher claims severity and unfavorable prior year claims developments.

As recent quarterly combined ratios have been higher than expected, we are monitoring the results closely and expect to return to combined ratio closer to 90%. The combined ratio in commercial P&C improved by 9 points to 91.8%, despite incurring 3 point from the Atlantic winter.

We are pleased with the continued improvement in the underlying current year loss ratio, higher favorable prior year claims development also impacted the combined ratio for the quarter. Finally, we expect that there are approximately 2 to 3 points of combined ratio improvement remaining to be earned from our commercial P&C action plan, targeting a low 90s combined ratio on a sustainable basis.

Finally, a few comments on our balance sheet. At quarter end, investments amounted to $13.4 billion, 4% higher than a year ago.

Our portfolio remains of high quality, well-diversified and the asset mix is stable. Our portfolio generated lower gains in Q2 last year, on weaker capital markets and increasing yields.

We recorded $32 million of impairments in the quarter and our non-operating results also include $21 million of gains realized on broker transactions. At the previous earning released, we mentioned a potential $15 million headwind from changes in the April federal budget, related to the tax treatment of certain dividends.

The rules are not yet final, but we continue to believe we can offset most of these last earnings, while maintaining our prudent risk management approach. We ended the quarter in strong financial position with an estimated MCT of 200%, and excess capital of $564 million, despite our all cash acquisitions of CDI.

Our debt-to-total capital ratio stands at 16.8% at the end of the quarter. In conclusion, we reported solid topline growth 23% higher underwriting income and an adjusted ROE of 16.1%.

When excluding the tax noise operating earnings are up 9%. These results are clearly positive, and I would like to thank our employees for delivering such a performance.

They are committed as we are to improving our results even further in the future. Finally, between our talented teams and solid balance sheet, we remain in a strong position to pursue strategic investments in manufacturing and distribution, inside 2or outside the country.

In the mean time, our investments in our brands, technology and customer experience are paying off. With that, I'll return the call to Samantha.

Thank, you, Louis. Mike, we will now open the call up for questions.

Looking at the distribution revenue, solid uptick year-over-year. And then obviously with your $100 million target, the confidence behind that, you do believe this is sustainable.

But can you let us know what the amount you've invested in distribution acquisitions year-to-date, and what the runway is for continuing consolidation within the industry?

So we're up to date $58 million for six months invested in the broker network. And I would say, it might double by the end of the year.

That would be the amount of this year. It's not clearly even every year.

Some years are more active than others. We had north of $200 million last year, but this year I would say, $100 million is probably the right level.

So Louis, that's just capital that you're talking about?

Yes

And Louis, what's driving the decline year-over-year? I mean I know there's going to be some fluctuations, but are you seeing competition for brokers or is it just that the available number of brokers is actually slowing down?

So I would say its more -- there is increasing competition in the market. I would say, consolidation is probably heating up, but there is more activity in the market.

And we had a bit of the backlog that sort of came through last year, and now I think market is heating up and competition is increasing a bit.

Charles, a question for you, like I assume, on the acquisition front, you're still looking for 15 to 20 points market share change hands in the near-to-midterm. And I was wondering if you could elaborate a little bit as to what type of acquisition you'd be interested in the Canadian market.

Would it be someone of perhaps more sizeable or similar mix or would you look for smaller kind of niche players, like the CDI or both or maybe you can remind us as well as your accretion in your IRR targets as well?

I think that's our view on opportunities has not changed. I think the thesis has played out in the past few years and continues to play out.

This perspective that there will be 15 to 20 points that will change hands started with a 25 to 30 point perspective, and this actually happened. So there is for us clearly 15 to 20 points left.

The ROE of the industry has not improved materially, that from our perspective is a catalyst that's super-fragmented. You have foreigners and their banks, mutuals, there's lots of activity.

I think the global M&A that's started to take place in the past six months from our perspective might also be an additional catalyst. So all-in, the thesis is not changing.

So when it comes to our philosophy from an M&A point of view, I would say that first and foremost our thought process is to get bigger in the areas where we're good as opposed to add all sorts of fringes around. And I think that's pretty much been what we've done with the few exceptions and that's our first and most important objective.

And why is that the case? Well, if you outperform because of data of segmentation, claims management, and so on, the best way to create value here is to do that on a bigger platform.

So the big scale national plays very high up on the list. Then when you look at the second angle of M&As how do you accelerate your strategy and how do you use M&A to accelerate your strategy, and this is where clearly we've expressed an ambition to double the size of our direct platform, double the size of our operative distribution and become a bigger commercialize player.

So on these elements anything we can do to accelerate these strategies that do not necessarily depend on acquisition. But that acquisitions can accelerate, clearly we'll act upon that.

CDI is a very good example of that. In November, I told the investors at the Investors Day that we wanted to double the size of our direct platform, make sure we have fairly deep presence from coast-to-coast.

CDI did exactly that. But it's not like we're venturing in a new business where we were deep in Alberta, pretty deep in DC, we have a very strong direct platform to start with, so CDI is a very nice complement to our direct platforms in areas where we have lot of expertise, whether it's data, whether it's claims, and lot of talent already.

And so this hasn't changed. As you know, I have a keen interest in adding to our distribution platform and these are much smaller transactions, but there is lots of them to be done.

There's lots of opportunities in the market. And I think that our team in helping brokers grow their business has demonstrated that they can actually contribute to those broker interpreters business model.

Then BrokerLink, which has now surpassed 1 billion dollars of premium, has been very effective at integrating many acquisitions and I expect they will continue to do that going forward. So when it comes to financial thresholds, which was the last part of your question that perspective has not changed I mean.

We want to make sure that these acquisitions generate $0.15 of the dollar at least, that sort of what caps off where we will stop. And that has not changed.

And I would say that this is true in all business units, in all lines of business, and in distribution, same thing. And the acquisitions that we're making in distribution have to stand on their own as distribution operations as opposed to being subsidized by our manufacturing operation and that is what I think explains the fact today that we are headed towards a $100 million pre-tax of distribution earnings, because we're focused on being really good at distribution not just being a supporter of our manufacturing operation.

And just one other question. Now that the home insurance action plan is now fully implemented, what level should we look at the combined ratio for personal property kind of leveling off going forward?

I'll let Patrick share his perspective.

Yes, as we have mentioned, I guess, in the past -- well, the main objective of our home improvement plan was to be able to operate that personal property line of business below 95, even in periods where we would experience higher catastrophic and that view has not changed. We're satisfied with the impact we've seen of our plan and it's fully rolled out now.

We are staying alert, because we're seeing trends like we've seen in Atlantic and making more smaller target changes, but views and our targets have not changed.

So first question I had was on the draft 2016 MCT guideline. And specifically, what you think might be the impact on your MCT ratio, if the proposed revisions are implemented as currently proposed?

And how you might want to respond to OSFI's call for a public comment?

Shubha, I'll ask Louis, our CFO, to give his perspective on that.

So this is a fairly recent new proposal that's out there. We're happy with the direction this is going, because it is recognizing the fact that companies hedge their risks.

And so we're viewing this as a positive move forward on OSFI's part. It's still early to say.

We do think it will have an impact, a positive impact, on our capital level. And at this point, it's not as big as the one we're seeing for the 2015.

So you remember, we have 21 points phasing in over three years, and we expect the impact to be smaller. But we're still measuring exactly what it will be for us.

But it certainly will not hit the 20 points, it's probably in the 10 to 12 range impact. But at this point, we're not sure whether it's going to phase in, and whether there are some impact that we have not fully measured yet.

And we'll keep you updated as quarters pass and we are more firm on it.

I will make two comments, Shubha. First of all, the 2016 is very preliminary, so I wouldn't count on any impact at this stage.

I think we need to see this thing manufacturing. But at the high level, we're very supportive of the work that OSFI is doing on the capital front, because they are becoming more sophisticated.

They are becoming more risk base, and certainly this is in line with how we see risk and where capital should sit. So we applaud them for their efforts on that front.

Just switching gears to Ontario auto. I guess, you guys have delivered higher rate reductions relative to the industry, based on your slide presentation.

I'm assuming most of that is probably down to UBI or telematics or what have you. And I'm just wondering how much of the rate reductions that you've delivered to date come from or are driven by UBI?

And given that the product's been out in the marketplace for roughly a year or more now and you've had an opportunity to assess the demand and what have you, how much more could UBI help in reducing rates in Ontario auto?

I'll ask Patrick to give you a perspective on the rate environment on Ontario and maybe touch on reforms as well, briefly. And then we'll give you a high-level perspective on UBI and what we're seeing on that front.

If I start with the difference you were stating between the amount of rate decrease Intact has taken compared to the industry so far, the main reason is because we proactively recognized some reforms that were part of Bill 15, before the rest of the industry. That's what explained that first gap, I guess, to start with.

In terms of overall reforms, as we discussed at the end of the last quarter, the latest budget in Ontario contain new reforms that were announced. And they are, in our point of view, very good in terms of potential cost reduction.

We are still waiting for the final regulation around those. We should expect them to come out in the coming weeks or months.

And the effect of those are the reflection of those cost reduction into the rates of Intact and the rest of the industry is probably going to be effective in the first half of 2016. In terms of our rates that we've taken so far, close to 2 points that came from the UBI initiative.

If we look at our take-up rates right now, our new business is close to 40% with an average discount of 10%. So ultimately, it could go up to 4 points overall, but that will take many years before we get there.

Because that's largely a new business initiative at this stage, but there is meaningful traction on that front. And this is really good for us.

It's a good tool to attract very good customers. And this contributes to the efforts of the government to provide a better deal for good drivers.

So I feel our objectives are aligned on that front and we're pleased with UBI progress.

It's contributing to our unit growth in Q2.

Yes.

So if I've understood correctly, so 2 points of the 9.6% delivered so far have comes from UBI. And you expect it to go to 4% or you think it could go to 4% over a multi-year period going forward, right?

Yes.

I just wanted to follow-up on Tom's earlier question on the M&A side. Just more of a conceptual philosophical question is, would you guys be comfortable partnering up with another insurer, if you found an acquisition target and you guys would, say, take the Canadian business of a global insurer or would you prefer to just do it of just if there is a clean kind of auction of a Canadian business, if it came up for sale?

So we're already keen on auctions is the first point I'll make. We're much keener on working with people with whom we have relationships.

We're [technical difficulty] complexity if we trust people with who we work. And other than very clear financial objectives, we're very flexible as to how we can put a deal together.

The next question I had was just obviously there has been a lot of forest fires in Western Canada. It looks like it hasn't really had much of an impact and it seems generally confined to more rural areas.

It's continued through into Q3. Has any comment on kind of exposures or lack of exposures from your perspective?

I ask Mathieu Lamy, who is in the business of fighting fire. So why don't you give us your perspective, Mathieu.

The exposure is difficult to measure in those situations, because it's an all or nothing. The risk of an event like Slave Lake, a few years back, is possible, but we think it's very low at this point.

But that said, the possibility is there. And so far, I'd say, the fire came close to our customer, uncomfortably close to our customer, but the fire fighting effort has been very successful at keeping the fire at base level.

So far very, very, very minimal damage we have.

And the final question I had is more kind of a bigger picture. There has been more and more news around driverless cars.

And I just wanted to get any color or insights you have, big picture down the road on what this might mean for auto insurance?

Geoff, I think that if you take a long-term perspective, say, within the 10 to 20 year horizon, this will be an important factor. And the train has left station as far as we're concern, because the technology exists.

I think the speed at which this will happen, depends on a number of layers. There is the speed at which the technology will be marketed broadly by manufactures.

There is the speed at which the regulators will create a framework for it to take place. There is the speed at which people will actually embrace this new approach to transportation.

And I think that this has in combination with the emergence of the sharing economy, which from our perspective is much bigger than autonomous cars, this has the potential to really reshape how people move from point A to point B. Clearly, autonomous cars will have a favorable impact on the number of accidents.

And in theory, could shrink the risk pool in automobile insurance to a certain degree. That being said, we are in the business of insuring people moving from point A to point B.

We're the largest first lines carrier, we're the largest commercial lines automobile carrier. And we're equipped to reshape the product and the offer to continue to lead in sort of providing protection to people when they move from point A to point B.

And that's very much how we look at that issue. We have researched on the topic, but I would say in terms of research, we're much more focused on the sharing economy, and how people share assets together and replace traditional means of moving, living, sleeping, et cetera.

I want to drill down a bit on the organic growth you're putting up, since it's starting to accelerate. So I've tried to do a little bit of math backing out the CDI from the direct to consumer premiums written specifically and coming up with a growth rate there, and then comparing it to the broker channel.

Sort of what I'm getting is broker channel organic growth seems to be accelerating, while the direct to consumer is kind of running around historical norms of, say, 8% to 10%. So I'm wondering, if I'm doing my math right?

And what it is specifically that's driving the growth through the broker channel?

I think in the broker channel, all lines of business are contributing. I would say that the area where the delta is the biggest is personal automobile.

And in personal automobile, we have a number of pressure points in the past 12 months to 24 months. The competition was really quite intense in the province of Quebec and had some pressure there.

And the Ontario automobile market, we came out following the initial realm of rate cuts being meaningfully more conservative than the rest of the market, and adjusted our position as we gain comfort. What happened in the last year, though, is that the environment has improved from coast to coast, and this came at the same time as we rolled out a number of initiatives, whether it's marketing, whether it's products, whether it's technology launches in the last few months.

So that combined with improving environment has led to a significant change in automobile insurance in particular in those two provinces, which represent the biggest markets in which we operate. So I would say for me that's the biggest delta between 18 months ago and where we're sitting today and when we look at the environment we're pretty comfortable that that pace can be sustained for some time.

Then I think in home insurance, and that's more true in the broker channel than the direct channel, the market is catching up and so we have moved from an environment where units were shrinking, you will recall, a year ago by 2 points, now we're in positive territory with the units, we're actually seeing 4 points of growths in units. So this is a major delta.

So that to me is how we've moved the needle in the broker channel.

Do you think that there are certain large competitors that historically have been more price aggressive, and based on public rate changes, they seem to be somewhat less aggressive on price? Do you think that's had any influence on organic growth for yourself and perhaps for other players in the industry?

I think to a certain extent it has. Some people are good at having one month of both feet on the accelerator, the next month both feet on the breaks.

I do think that what you are describing might pick up in the second half and first half of next year where large influential players taking more cautious stance on things, but I don't want to get into specifics here. These our signs of an improving environment and I would say we see that in more lines of business, in more jurisdictions today than we did six months ago.

And that kind of actually is a good lead-in into my next topic of conversation, which would be the core loss ratio. So I understand the explanation related to the Atlantic provinces, but it's a relatively small piece of the puzzle in terms of geographic exposure.

And then we're also seeing large reserve, favorable reserve development. Does that suggest that we're still seeing a fair amount of conservatism built into current reserving in 2015?

Look I think when you have a track record of healthy, favorable development over time one has to assume that indeed as you build up your reserves on your new claims, your past approach to reserving is reflected in your new claims. So I think it is a fair statement.

I think it is important as we talked about in the previous quarter to understand that sort of higher than normal favorable development we've experienced in the past year or two, has a number of factors in there that one should not necessarily assume you will see at perpetuity, so to speak, and we've talked about this in the previous calls. But I will say it is a fair statement, Paul, to say that if you have a very strong track record of favorable development that you're cautious when you set up your reserves on new claims in the current accident year.

That's why just focusing on the current accidents year loss ratio and adding expenses misses a portion of the genuine performance of the business.

My assumption would line up with that in terms of, I mean, you're increasing organic growth at the same time, it looks like your core loss ratio is going up, but maybe there is some other factors at play there. And then final question just in terms of your investment portfolio, you remain comfortable with the net energy exposure in the book?

Yes, I'll let Louis comment, but I want to come back on your current accident year point here.

We do have it all still in same space, about 50% of total and we're comfortable there at this point in time.

So back to your question, Paul, because I think it's an important one, it's one that we're spending time on every week, because a big portion of what we do is to spot trends to make sure that the current accident year performance does not deteriorate. And when you put organic growth in the same statement, one could say, well, are these guys doing things to grow the business that will deteriorate the underlying performance, and I would say, absolutely not, as far as I'm concerned.

What's moved the needle on the topline this quarter, and it's very clear, there is a lot of empirical evidence that this is the case, its acknowledging deliveries that have generated more response, additional investments in advertising that has pushed our general expense up a little bit. New product launches, I mean these product launches are priced with similar ROE as the core business.

And then market-by-market conditions that have made it such that people are catching up to some of the positions we've taken in the past two years. So I will say that the topline is not coming at the expense of the underlying loss ratio, that's the first point.

The second point on underlying loss ratio when I think about it, you have pointed out from Atlantic storms and prolonged winter and late reporting of claims, so that's a little more than half of the deterioration, in fact, more then half. Then what is left?

There is two other factors as far as I am concerned that explained the deterioration at the end underlying loss ratio. One is an uptick in frequency in personal auto of small claims.

So Patrick and I, and some of the regional actuaries looked at that. And I think that these are one-offs, these are weather patterns, there is nothing in there that lead us to let's changed how we price business or let's changed the product.

Commercial auto, we stared that for a long time, because I mean it's a 15 point deterioration, and that's pretty big. Combined ratio is 94.4%, so in itself it's not a bad combined ratio, but we know that business performs much better than 94.4%.

And what explains that is there is a number of one-offs, a few IB&R adjustments and some large losses. So there is no clear trend emerging there.

And where we have pockets of issues, we have action plans backing those profits of issues, so certainly very long answer to say that growth is not coming at the expense of the underlying loss ratio.

Just the first question, I wanted to confirm the impact from the winter storms in the Atlantic, sorry, Louis, did you say it was 1.4 points on the combined ratio?

That's right.

And then second, Charles, you gave a little bit of detail on commercial auto, and I'm just trying to get a little bit more detail. You've said there's increase of frequency of smaller losses, there is weather events.

I think there were some large losses. Can you give a little bit more granularity on what's going on with commercial auto?

And has there been issues this quarter, I think there were some issues even last quarter, correct me if I'm wrong? So I'm just looking to see what's going on in commercial auto side with a little more granularity.

Yes. So Alain will take this one, but just to be clear, the uptick in frequency in small claims is in personal auto, not in commercial auto, but Alain, why don't you share with us your perspective.

Well, I think the first thing I would like to say, Doug, is going back to what Louis said, we think that this line of business operates more in closer to 90% compared to, let's say, mid 80s two years ago. And that's not a deterioration of our margin.

It's an overall deterioration of the market. That currently is trending to high 90s.

Basically our performance is historical, outperformance is about 8 points. It was 15 points in the first quarter of 2015.

So we still have the strong performance in that. If I look more at the quarter with that in mind, what we saw in the second quarter there's a very small increase in frequency of about 3%, but that increase is overall in Canada.

When we look at it by provinces, we saw a decrease in Quebec, some increases in Ontario and Alberta, and a very large increase in Atlantic due to the winter storm. And that what does is Quebec doesn't have the BI coverage.

So we have a very low severity in Quebec compared to the other provinces, where we cover BIs. So that as led in average to an increase in severity, and that has for the current year probably had an impact of about 3, 4 points of combined ratio.

And that's over, last year that was very, very low at 53%. We also saw some deterioration in the prior year.

We're 6 points worse than last year. And that's coming basically from two sources.

One is some very old claims of AXA and JEVCO, where we saw a huge increase in some large losses to the tone of about 2 points, 2.5 points. And we also saw less closure of claims in the second quarter to about 100 less claims closed.

And it's when the claims are closed that we released the reserve. So that has an impact of another 2 points.

So those are all basically unrelated elements that basically appeared all into second quarter. So we don't see any trend there.

That being said, I would say, we continue to monitor the situation closely. And as we did in P&C where we invested in reviewing our pricing algorithm using all the data, techniques and expertise we have.

We're doing the same thing in commercial auto with targeting or implementation of those early 2016.

And I think there was mentioned in the release as well just around competitive trends in trucking. Is that an area where you're seeing increased competitive pressures?

We're growing in trucking, because that was probably in the very competitive environment. The segment where we saw the market kind of changing and going on the firm side, that contributed in the first quarter 4 points of growth and this for commercial auto.

In the second quarter it contributed about 2 points of growth, as we saw a slowdown on that growth and some players coming back, but staying very disciplined. So a scenario we want to grow, but a scenario we want to grow with making sure we have the expertise and at, let's say, no reduced contribution or no pricing.

We are not letting go our pricing. I'm sorry, I'm trying to find the right word.

But we're not jeopardizing anything on the pricing side. We're keeping to our very disciplined pricing action on trucking.

And then just lastly on Ontario auto. There has been more developments obviously with the budget around the cat definition.

Were there any additional -- I know you've released some reserves in the first quarter. Was there any additional reserve releases that came around the reforms in Ontario auto in the second quarter?

Not really or not in any significance, I would say.

Most of my questions have been asked. But Charles, I'm just curious, on the M&A front, when you think about the U.S., what do you think the competencies in areas of data segmentation that Intact has that's transportable to the U.S.

and where you could still earn kind of the same type of returns you earn in Canada?

So when we look South and think through where we have something to contribute, our biggest thought is that the relationship we have with small-to-medium size enterprises here in Canada, we have one in four, we insure one in four small-to-medium size enterprise. We have a service model that is geared towards that segment range of products geared towards that segment.

And we've taken the actuarial discipline in commercial lines to appoint that I would say is even further than in personal lines. And these elements, when you map that over what we see happening in the U.S.

and super-fragmented nature of small-to-midsize business in the U.S. would be one area where we think there might be an opportunity for a firm like Intact.

I think standard automobile insurance in the U.S. is not necessarily a place where we think we could win.

Quite frankly, there are really good players out there. We like to benchmark what we do with what some of these guys do.

And I think here the GEICOs and the Progressive, and not sure that there is much of an appetite here to go and compete with people like that, just like I hope that you have no appetite to compete with us here in Canada.

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

And a telephone replay will be available at 2:00 PM today until Wednesday, August 5. A transcript will also be available on our website following this call.

Our 2015 third quarter results will be released on November 4. And with that, thanks again, and enjoy your day.

Thank you.

Thank you.