Intact Financial Corporation

Samantha Cheung - VP, IR Charles Brindamour - CEO Louis Marcotte - CFO Patrick Barbeau - SVP, Personal Lines Alain Lessard - SVP, Commercial Lines Mathieu Lamy - SVP, Claims

Geoff Kwan - RBC Capital Markets Kai Pan - Morgan Stanley John Aiken - Barclays Meny Grauman - Cormark Securities Brian Meredith - UBS Paul Holden - CIBC Doug Young - Desjardins Capital Markets Tom MacKinnon - BMO Capital Mario Mendonca - TD Securities

Thank you, Connor, and good morning, everyone. 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 are Charles Brindamour, CEO; Louis Marcotte, CFO; Patrick Barbeau, SVP, 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.

Charles?

Good morning everyone, and thanks for taking the time to join us today. Earlier this morning, we announced third quarter net operating income of $199 million or $1.47 per share, 7% better than a year ago.

Growth accelerated across our platforms to a strong 8%, six points of which are organic. Our underwriting results are sound with a combined ratio similar to last years at 93.2%.

While our distribution income continues to grow rapidly, reaching $28 million in the quarter. As expected, investment income remains stable at $105 million despite a tough yield environment.

Our performance led to an operating ROE of 16.9%, 2.6 points higher than last year but our book value per share growth was modest at 4%, given the challenging capital market environment. On a year-to-date basis we delivered net operating income per share of $4.40, up 15% from last year on higher underwriting and distribution income.

Our ROE outperformance remained strong after six months at 520 basis points but narrowed from December 2014 as the industry's ROE improved to 10% and we suffered from weaker capital markets. As mentioned earlier, we have seen strong topline in the quarter driven by all lines of business; both rates and units together drove 6% organic growth.

And we added two points from our acquisition of Canadian direct insurance. Even though our growth is strong it does not come at the expense of quality and future profitability.

We are equipped with proprietary profit indicators at the client level to ensure our growth is a profitable one. Our initiatives to expand the business organically continue to pay-off.

New product launches such as cyber risk protection, our multi-media marketing campaigns, as well as improved digital experiences through our buy online offers or quick quotes all helped offset pressure from declining rates in Ontario. Our distribution activities are also contributing to our growth momentum.

That said, despite our strong operating ROE, we expected better underwriting results given the $81 million of catastrophes were slightly lower than what is typical in the third quarter in addition to healthy support from prior year claims development. The deterioration in the current accident year loss ratio was largely driven by losses from multiple non-catastrophic weather events as well as large losses.

We don't see this as a structural deterioration of the underlying performance of the business. Let me give you a perspective by line of business now.

So during the quarter personal auto grew 9% including three points from CDI driven by a number of customer improvements in a better competitive dynamic. Although the combined ratio of 94.4% improved on prior year claims development, frequency is slightly higher which we attribute in part to non-catastrophe weather events such as hail storms.

Our telematics data which offers an apple-to-apple comparison with last year does not provide evidence of higher number of kilometers driven. With regards to the industry for personal auto, we expect minimal growth in the coming 12 months.

As you know rates vary across the country with premiums growing in Alberta as planned [ph], remaining stable in Quebec and decreasing in Ontario, both of which are large contributors to our business. We continue to believe that rate reductions in Ontario to be in line with the government cost reduction measures.

To-date the industry has taken close to seven points of rate reductions before reflecting the impact of the April prevention budget and last year's bill '15. The government required rate filings for the end of October this year or to be effective in the second quarter of next year.

We do expect three to five points in net cost reductions from the last reform package. We reflected some of those reforms in our latest rate changes already.

This leaves us in a strong position to pursue our growth ambitions in that market. And personal prop, we grew our premiums by 10% including three points from CDI and what continues to be a hard market.

Our new products such as our lifestyle advantage and our early rate actions in this market continue to improve our competitive positioning. Our combined ratio of 97.4% includes a higher level of non-CAT weather events, as well as large losses and the remaining impact of the Atlantic winter weather we talked about in the past couple of quarters.

We don't view this as an ongoing issue. On a year-to-date basis, our combined ratio is four points better than year ago at 90.5%, thanks to our home improvement plan.

Overall, our view of the industry for personal property has not changed and we see continued hard market conditions leading to upper single-digit growth over 12 months. Let me take a moment to discuss our commercial lines of business.

Our profitability initiatives and commercial P&C combined with former market conditions led to very strong results this quarter, similar to last year's stellar results. We grew our business 3% year-over-year while taking robust actions to improve our performance resulting in a combined ratio of 84.6% for the quarter and 89.1% on year-to-date basis, in line with our low 90s target.

The industry conditions continue to improve and this industry segment should see mid-single digit growth in the coming year. While commercial auto premiums grew 8% in the quarter, we were disappointed with the combined ratio of 97% which was primarily impacted by large losses and unfavorable prior year claims development.

We are implementing specific corrective actions including rates, refined segmentation, underwriting strategies, as well as loss prevention aiming for a sustainable combined ratio in the low 90s. While still competitive at the industry level, we believe the market is firming up in that line which should help underwriting profitability.

At the end of September we remain in a strong financial position with $389 million in excess capital and an MCP of 195% after reflecting the impact of weaker capital markets and completing the acquisition of CDI. The integration of CDI into our operations in the West continues to be on-track with positive impact on top line and operating earnings.

Our teams are ready to pursue other opportunities in the near to mid-term. In addition to growth and profitability, innovation is a key focus area of our development.

During the quarter we announced an agreement with Uber to develop tailored insurance products, our first flow into the rapidly growing sharing economy. We also announced an agreement with TELUS to create a unique fleet management insurance solution for Canadian businesses leveraging our telematics capabilities.

This year continues to be very active for our employees across the country as we roll out new products and new technology interfaces, execute our branding initiatives and continue to console the distribution and manufacturing so as to ensure our customer experience continues to be second to none. Our employees' engagement makes a big difference and we're well on our way to building intact as one of the best employers in Canada.

In conclusion, our growth initiatives are paying off leading to a strong topline which will provide positive earnings momentum going forward. Our operating performance remained strong and our ongoing action should help us continue to outperform the industries ROE by 500 points and grow by 10% per year overtime.

With a competitive environment conducive to growth financial strength and a strong group of people across the country were confident in our prospects for the rest of 2015 and beyond. With that, I'll turn the call over to our CFO, Louis Marcotte.

Thanks Charles, good morning everyone. Our topline growth accelerated further in Q3 to 8% on an underlying basis.

We saw growth momentum in all lines and all regions with a good mix of units and rate increases. Underwriting income grew 6% in the quarter on higher earned premiums and stable margins as our 93.2% combined ratio was unchanged from last year.

Higher favorable prior year claims development and lower CAT losses were offset by non-CAT weather events and large losses. A non-CAT weather event is considered one when multiple claims related to the event do not reach our $7.5 million CAT threshold.

A large loss is defined as a single claim for an amount above $250,000. Both these items combined at an estimated two point impact on the underlying current year lost ratio.

Net investment income was stable at $105 million as the benefit of incremental investments was offset by lower yield. We expect to see a mild erosion of our net investment income going forward as the low yield environment continues to be challenging.

The expense ratio of 29.8% is up slightly from last year as higher variable compensation was offset by lower commissions. Distribution income grew 40% in the quarter to $28 million, $82 million year-to-date due to the expansion of our distribution operations and its higher profitability.

These profits vary significantly by quarter but remain on-track to hit $100 million in 2015. We expect these earnings to grow north of 10% over the next 12 months based on our existing portfolio.

Net operating income per share of $1.47 is 7% higher than last year as a result of our growth and profitability initiatives and the items I mentioned earlier. There was also a positive impact from corporate and other income of $9 million resulting from a onetime expense recorded last year.

Finally, the effective tax rate on operating earnings of the quarter was 20.4% in line with our expectations but 1.9 points higher than a year ago when we benefited from the resolution of specific tax files. Let me now provide a bit of color on our underwriting results.

The personal auto business delivered strong organic growth driven by 6% increase in units. Our investments in our brands and in the digital experienced, combined with a favorable environment have been instrumental in driving unit growth across the country.

We reported a 1.4 point improvement in the combined ratio for the quarter. Favorable prior year claim development increased 1.9 points from last year, partly due to the impact of industry pools.

The underlying current year loss ratio is up two points which we attribute to non-CAT weather events such as hail storms and slightly higher frequency. With regards to risk sharing pools, whose results tend to fluctuate between quarters, we saw positive results from both, the seated pools which we control, and assume pools which we share with the industry.

In the quarter, our share of the assumed industry pools represented a profit of $4 million, a $15 million improvement from last year. In personal property, we also saw solid organic growth of 8% on rate increases and 4% unit growth.

From a margin perspective this line of business performed slightly better than a year ago delivering a combined ratio of 97.4%. While we had fewer headline catastrophe's this year our results were impacted by the higher level of non-CAT weather events, as well as multiple large losses and the remaining impact of the Atlantic winter storms.

These items combined represented approximately seven point and explain most of the increase of the underlying current accident year loss ratio. On a year-to-date basis, our combined ratio of 90.5% is a proof point that our action plan and personal property has been effective.

Commercial P&C grew 3% in the quarter, all organic, essentially on higher rates. The market is firmer evidence by our average rate increases of 4.3% in the quarter.

Although we are watching economic indicators closely, particularly in the west, we have not yet felt much impact from a slowing economy on our commercial business, except a bit of headwind and surety [ph]. The combined ratio remains very strong at 84.6% for the quarter, 89.1% year-to-date, and we expect another one to two points of improvement to be earned from our action plan.

On the commercial auto side, our combined ratio deteriorated 7.6 points to 97%, partly due to noise from the reallocation of reserves between auto lines as well as an increase in large losses and some impact from U.S. exchange rates.

Our corrective measures are aimed at curbing the impact of the last two items and returning to a combined ratio in the low 90s. Finally, a few comments on our financial strength, challenging capital markets resulted in net investment loss of $64 million in the quarter, a sharp reversal from last year's gains of $30 million.

The loss was driven by impairments of $56 million, primarily from continued weakness in the energy sector which represents only 6% of our invested assets. Our portfolio is well diversified of high quality, and the asset mix is stable.

Despite these challenging conditions we ended the quarter in a solid financial position. With a debt-to-total capital ratio of 17.3%, $389 million in excess capital and MCT of 195%.

The impact of mark-to-market losses on our portfolio in the quarter was six points of MCT. Book value per share was down 4% from Q2, including a $1.55 from unrealized losses recorded in the quarter.

Both common and preferred shares were impacted by the markets but the bulk of our unrealized losses were driven by the decline in the preferred share market which was mostly affected by interest rate expectations. Our preferred shares comprise 8% of the investment mix and are of high credit quality with an average rating of P2 by DVRS.

The decline in value is generally not related to credit risk of the issuers. Our preferred shares with reset features have been most impacted by the recent market behavior.

Nevertheless, we remain long-term holders of preferred shares. As you know, a prolonged decline in the value of our equities could lead to further impairments.

This would have no impact on our financial strength, our MCT or our acquisition capabilities. Impairments if any would negatively impact ROE in the year they are recorded.

Fortunately, markets have rebounded in October, largely eliminating unrealized losses reported on our quarter-end balance sheet. Although final guidelines are not yet published, we expect our MCT ratio to be positively impact by the upcoming changes in 2016 between 10 to 15 points overtime.

During the quarter Moody's improved their outlook on our ratings from stable to positive. Also Fitch launched a rating for IFC, signing a rating of A minus to our senior debt.

Finally, we renewed our base shelf prospectus in September increasing the amount of $5 billion from $3 billion to give ourselves a bit more room to fulfill our growth ambitions. Overall, we reported a sound performance in the quarter, particularly considering the capital market headwinds.

We remain in solid financial position to capitalize upon growth opportunities. Our results this quarter show that our investments in CDI and organic growth initiatives are paying off.

Distribution income is growing as planned while our underwriting results continue to be healthy. We have a strong platform from which to provide unparalleled service to our customers while delivering strong operating returns for our shareholders.

With that, I'll return the call back to Samantha.

Thank you, Louis. Connor, we are now ready to take questions.

Thank you.

Hi, good morning. First question I had was, I know you guys gave some good color in terms of each of the division lines and then what happened.

Just wondering if can maybe give a little bit more, maybe some examples because I'm guessing with the non-CAT whether it may have been, for example, like the wind and rain storms out here in Vancouver. And just trying to get a sense of what some of those events are but also to around the larger losses - were they kind of geographic or maybe some examples of what those were.

Sure, thanks for your question Geoff. I think the large losses are of course trickier to comment upon because they are individual cases but we might give you a sense of pattern maybe.

I'll ask Mathieu Lamy who has the pleasure to manage all those non-CAT weather events and maybe you can give us a bit of color Mathieu.

Yes, so we had non-CAT event but still largely - weather related events in Alberta mainly, and mainly in the west - hailstorm in central Alberta. We had one hailstorm in Quebec and some rain in Ontario a little bit.

So those are - that varies from year to year since they are weather related. They didn't make quite the threshold of 7.5 million but they are still losses that are larger.

And one needs to keep in mind that there was $81 million of CATs as well and as you know this is slightly below our expectation for the third quarter but it's still a meaningful amount of catastrophes to absorb and manage.

Okay. And then on the direct premiums written it was - I mean it looked like a pretty good quarter, I know you've talked about the investments that you're making in brand digital and whatnot there.

I just was wondering if there is anything else that you might attribute to it - I mean, whether or not it's also with the heart of market conditions that given you typically have moved first on prices and others were catching up and therefore you became more competitive within the market. And again, if there is any other things that you would attribute to the strong performance?

Jeff, I think you're absolutely right. I mean if you go back, let's say two years, you will have seen us take a fairly proactive sense on correcting issues whether it's commercial lines being cautious and in rate productions in Ontario to a certain extent and taking action in home insurance.

And of course, when we did that unit growth was muted, this prompted us to find ways to accelerate growth in other ways, in addition to putting in place our strategy when it comes to client experience and distribution. Now the market is correcting, as we've identified in the outlook and our actions are paying off at the same time, so I think when you put both at the same time you get that sort of organic growth in the 6% range before CDI which I would say if it would be for our actions alone, I'm not sure we'd be at 6% necessarily, we'd probably be in the mid-single digit range.

But we think this is a good environment for us to invest and client experience in brand, and that's what we've shown in the second quarter following - and in the third quarter as well.

Okay. And just the last question I had was, you talked about in the terms of your cyber product and then you made the announcement on the Uber, is it the Uber one - does that make an exclusive one?

And also just with respect to both of those lines, just if there is any thoughts as to what kind of potential impact may have on DPW?

I'll ask Alain to give a bit of color on cyber because it's a product that we've launched in commercial lines, and I'll give you a perspective on the sharing economy.

So basically we launched cyber early April this year with the objective of trying to get a take up rate of the coverage up to 20% on our books and so far we're quite pleased with the response because the end of September we were running at about 15% of our policy taking cyber coverage. But if we look at it on a new business, we're running closer to 35% and that number has been increasing steadily.

We have to understand that cyber is something that needs to be sold, it's a new coverage, it's a new risk for lot of our customer. So it's something there we need to educate both, the broker and the customer but once we educate them they see the value of it and the protection it gives in terms of privacy breach and everything.

So we're quite happy with the take up so far on the cyber coverage.

And then I think, broadly on products, I mean we've highlighted examples of product launches that we've made but we have - if I look at the past 12 months, a number of new products that we've added on the shelves ranging from our UBI strategy which I've been paying out very nicely, our lifestyle advantage in home insurance. We've recently announced new features that will be ruled out in '16 in home insurance in relationship with more coverage and then some of the things we do in commercial lines.

With regards to Uber, I mean close to 90% of Canadians want to have access to sharing economy offer like the one that Uber provides and we're working with them in cooperation with regulators to ensure that the insurance solution is as good as it can be available in the Canadian marketplace. And it is indeed an exclusive relationship at this stage.

Okay, great. Thank you.

Good morning, thank you. First question is on the follow-up on the non-CAT large losses, the two point impact.

Are those sort of like if you take it out for both, personal auto, personal property line, it looks like the underlying combined ratio remain unchanged year-over-year. Is that your expectation given the pricing on auto, I can't understand but on the property side, do we expect further underlying improvements or leasing the margin now is sustainable for the future?

I think that in personal auto, it is a fairly stable environment and we don't see much rate momentum in aggregate. I mean rates are moving up in Alberta, rates are moving up in the Atlantic, they are down a bit in Ontario.

We think of automobile as a flat rate environment in a fairly stable cost environment. Home insurance I think is an area where there has been momentum in the past year and there is a bit of upside left in terms of some of the actions we've taken.

I'll let Patrick, who is the expert on the file to give you a bit of perspective there.

Yes, on property - personal property, there are still some rates going up because unwinding capping on renewals, that's across the country. But as you know, we have talked about a very difficult winter in Canada that has affected our results all the way to August and we are taking some additional actions to make sure we address the situation.

So additional rates being taken in those provinces and a few product adjustments, so this is aligned that we need to stay alert and proactive to keep our positioning but we're very confident in where we are and correcting the few places we see.

Perfect. And I think it's probably we're touching on commercial lines.

If I just take the spirit of your question there has been a bit of noise, commercial P&C as you know, we have been working on improving the performance of that line of business over the past few years, we've been trying to be opportunistic in a firming up marketplace, and we're showing strong mid-80s combined ratio in that line and we're increasing rates by 4.3% in the quarter. So for me - now correct me if I'm wrong, I think it's about 4.3% in the quarter.

I think the area of focus for us in the past few months after a few quarters of - I would call this disappointing or average performance for commercial auto. Maybe I know you could touch on the key points that we're deploying in the coming weeks and couple of months in commercial auto to address the fact that we're just not happy with the mid-to-upper 90s performance in that line.

So basically when we look at the situation in commercial auto, there has been a lot of elements and noise coming out throughout the year but the results being what it is in the last four quarter and because of that we have implemented corrective measure. I'm going to touch a little bit on some of those.

Clearly on the rate side, we are increasing rates mostly in provinces and in segments where we think we need - and we're facing headwind. The first one that's been released lately is we're increasing our rates in Alberta by 9%, that's been approved it was a filing done in August, that's been approved last week.

So that will be coming up and affecting our results in the first quarter of 2016. Also we've rolled out in 2012 a new fleet system and that fleet system has accumulated a lot of information over the last five years, and we're basically bringing to our fleet rating algorithm, the same kind of power and segmentation we did in P&C.

And that again will be gradually rolled out in the future. I would also to touch a little bit on the exchange rate.

Part of our trucking book is exposed to exchange rate like between the region 10% to 30% of our exposure is in the U.S. and the exchange rate over the last 12 months have basically cost us 15% to 20%.

We've taken some rate action but clearly not sufficient enough. So we're doing and we're adjusting again our rates to reflect the closer exchange rate that we're basically living this year.

So that's on the rate side, you know pretty much what's going on plus some adjustment here and there in sub-segment, smaller portfolio into different provinces. We're also rolling out underwriting action, more controlled reviewing the eligibility classes, and we're also bringing review of our rich sharing pool facility, seeding rules, things like this.

And also lately we are doing more on the prevention side, and all of our large trucking account are being visited by preventionist prior to coding to make sure they meet minimum prevention requirements that we've uptake. And we're also - as you see rolled out a new prevention tool for our fleet manager in conjunction with a partnership with TELUS to again improve and promote a lot more prevention at the fleet management level.

So we believe clearly that all of those action are what will bring our combined ratio back to the 90 levels.

So clearly the spotlight is on commercial auto at the moment. Maybe additional color, what we're seeing now in commercial auto in the third quarter was the sort of 1.2% rate increase rolling in the system.

We see that getting roughly 3X to 4X higher than that in '16.

Thanks so much for expanding into commercial auto. Do you know what was exactly the reasons for these rising frequency with severity.

And also the action you are taking right now, normally how long will you take for the combined ratios to return to a target levels?

The issue in commercial auto is not frequency driven, in fact the frequency is down in the quarter. Year-to-date frequency is down minus 0.6% in commercial auto.

I mean it's essentially a severity issue. And Alain talked about foreign exchange on U.S.

phase, losses and when you get into trucking for instance, you have movement back and forth around the front gear and that's how those U.S. dollar related losses emerge.

We've had a number of large losses and the fact that we've seen an increase in severity across the land I think is where we're saying we need to take action. We've refined our reserving for commercial auto, there are certain elements of reserving that we looked at it aggregate between personal and commercial auto, and there has been some refinements in the third quarter that have pushed our perspective on commercial auto up a bit.

Obviously, not very impactful on personal auto because personal auto is so much bigger than commercial auto. But when you make this change you also put some pressure on your perspective of the severity.

And so there was enough noise for us, there is not one single cause, one single source of inflation, just enough noise, and a better marketplace to actually put corrective measures in place. The second part of your question was along.

I mean underwriting measures can have an impact fairly quickly. Rates, as you know you can expect in the first part of '16.

The CR rates increased closer to 4%, and that will be earned over an 18 month sort of horizon. So our expectation is to see some momentum and some results in the near-term.

It's not a three-year plan.

Okay, great. My last question is on the investment side and the impact on your MCT.

It looks like the market actually declined like 8.5% in Toronto Exchange in the third quarter. In your guidance Charles you said 10% decline in equity market resulting three points impact on your - two to three point impact on MCT.

It looks like quarter is a little bit bigger, could you kind of expand it a bit? And also what's that MCT level, would it have any impact on your capacity for financing future acquisitions?

The guidance on sensitive as you mentioned, however, it actually - we measure this 10% on common equities and then 5% on preferred. Common have deteriorated 10% in the quarter, nine or something in Toronto as you've said, perhaps north of 14%.

And that's what drove the decline in the market value. So the commons have come down, in line with the market, but the press have also impacted the MCT because of a 14 plus market decline in the quarter.

So the two together actually drove the MCT decline.

Okay. How about the capacity?

So on the capacity front, so this is a - we don't see that as a reduction in our acquisition capacity, all transactions we look at - we would look at with the capital generation we can do on a quarterly basis, we think we can keep the same capacity per requisitions, we don't see that as an issue.

Okay, great. Thanks so much for the time.

Thank you.

Good morning, just a follow-on in terms of the investment portfolio given the weakness that we saw in the court in the volatility that it introduced to your MCT ratio, as well as the book value, is there any thoughts to changing your investment strategy or the mandate that you've given your team?

No, so we've looked carefully at this and we remain long-term holders of the press and our mix is expected to be somewhat stable to what it is today.

Great. Thanks, Louis.

And a follow-on to your prepared commentary in terms of the distribution, I believe you mentioned that you're expecting 10% growth in 2016 with your existing portfolio. So then - first of all, did I get that correct?

And secondly, does that mean that any additional acquisition pf brokers would actually add to that 10% number?

Yes to both. John, it is - what I mentioned 10% next year and then that's existing portfolio.

So future acquisitions would be incremental.

Good to see I was paying attention. Thank you.

Hi, good afternoon. Just wanted to follow-up on Uber and just ask a question about whether you're taking any actions or tracking the use of personal insurance among Uber drivers and what's your perspective on that as being an issue or something that needs to be addressed and corrected?

I'll ask Patrick Barbeau to share his perspective on the impact on personal insurance.

So on Uber as we said, for now we have announced the partnership but we are just in the process of working with regulators to find the right solution to start showing the policies. So right now we don't have - we have not started to have them on our books.

In terms of perspective on the results of - on the personal line side for those driver, there is likely an additional exposure but we will have a product that would be priced for that additional risk. So it's not - this is not for us a concern I think the risk will be property rated.

Uber has been in place in few different parts of the world already with some experience, so we can start with something and not from a blank page.

Thank you very much.

Yes, thanks, good morning. Charles, I just wanted to go back to the personal auto and some of the frequency you're seeing there.

Last quarter you talked about the frequency being up, obviously kind of onetime due to small claims. This quarter noticed the MDA suitable, not because increase in kilometers driven.

Any other that you can kind of point to as to why we're seeing the increased frequency in personal auto and any views on whether that's going to moderate here going forward?

I'll ask Patrick to share his perspective on the kilometers driven because we've been pretty rigorous in trying to measure that Brian because you know you've heard the increase in kilometer driven as the reason for frequency increased in the past and particular sort of our border anyways. And so I'll ask Patrick to just share his perspective on that and then we'll tell you what we've observed in a little more detail in the quarter.

Thanks. So on the UBI as you might recall, we have launched this initiative early in 2014, so we now have - some historian are able to compare the kilometers driven by our clients in the quarter this year compared to the same quarter last year, and we've been doing that for three quarters now, since the beginning of history.

Our history is not long but we have accumulated over one billion kilometers driven by our clients in the program so far. So I think it's starting to be a good indication.

Of course it's not the total of the portfolio, it's about 10%, 15% of the portfolio but on that one - that we can measure, at this point we're not seeing an increase in the average kilometers driven by clients.

In any of the province where we've looked at?

No, there are some situations but nothing significant enough for us to conclude any trends at this point.

And it's almost a driver by driver a comparison. So it's as tight as you'll get a reading on kilometers driven.

Maybe you want to share a bit of perspective on what has been creating a bit of frequency pop across the line?

So to recap, I think we have mentioned two point deterioration on the current accident year loss ratio for personal auto in the quarter compared to last year, this is due to frequency. Severity for that line is like year-over-year in the quarter.

That two points, about half of it that's explained by again the weather events that we've talked about, especially that affect claims in auto as well as the personal product. The remainder, we don't have a very good explanation besides there is more accidents, in our experience.

But we're not - what we're doing is rates are really going up in Atlantic and Alberta, we're slightly accelerating those rates increase. And we're taking some also in Quebec just to make sure that we're proactive and if there is anything beyond that we are maintaining our margins.

And I think there is a bit of noise in the frequency number as a result for instance of adding more motorcycle than we used to following the JEVCO acquisition. The frequency of motorcycle is highly seasonal and year-over-year it shouldn't make a big difference but that's part of the noise.

I think the integration of Canadian direct insurance brings the different profile of claims within relative terms because in the west there is way more glass claims. So you see a number pushing the frequency up but you should have an upset on the severity side of things, in fact in the quarter itself the severity is down a bit but not as much as the frequency.

So there is a bit of noise there but the biggest drivers are non-CAT weather events and hail in Alberta purely being the biggest driver of what we see on the frequency side of things.

Got you. And then Charles my second question, can you just remind us your thoughts on - share buyback stocks down, fair amount.

Obviously I know your first priority is to look at the potential for organic growth as well as M&A but would you think about buying back some stock here?

Yes. I think that - no, there are good out there to consolidate the market, just a bit abroad mean this - that perspective has not changed whatsoever.

But on days like that I'd love to have an open NCIB, I think that our - I will say on this one, my philosophy is not to have an NCIB that you don't use. And given the opportunities that exist in the marketplace right now, I didn't feel we needed to have an open ended NCIB because I didn't think we would actually use it.

But would we have we definitely would be opportunistic with it but as you know, you cannot just start NCIB overnight, you need various approval from the Board and authorities. But I'd love to have an NCIB, yes.

Okay, thank you.

Thank you. So first question is going back to personal auto for a second now, so we've seen frequency trend up like first few quarters now and you said that you'll respond by increasing rates in Alberta and Atlantic Canada.

Does that suggest we should assume that frequency will remain at these elevated levels or perhaps even trend higher?

The point on rates going up in the Atlantic and Alberta is not really frequency driven, rates are up right now. We've seen some severity in these jurisdictions and the big scheme of the country, severity is down for a number of reasons.

But the trigger for the rate increases in the Atlantic and Alberta is not really been a structural perspective on frequency, would you agree with that, Patrick?

Yes, we've talked for a couple years about DI in Alberta, the impact of decisions and the fact that we have an action plan but we are taking rates also because the variety is increasing because of that part of the coverage. And so that's one example.

And Atlantic, bit of the same there was an increase in CATs that are in - I think then also severity. But I don't expect an acceleration of frequency, that's not the reason why we're increasing rates, it's more - we're being preventively observe, it's like taking frequency over the last couple of quarters.

We're taking some right to predict our margins but we don't necessarily expect more in the coming quarter.

There is not a structural huge change on frequency at this state.

Got it. And next question would be related to personal property.

So when I look at Q3 for the last several years we also - we obviously see some seasonality in terms of the combined ratio. This year with less CATs but more on CAT losses.

So given your long-term target overtime in this line of business is 95%. Is it safe to assume and sort of in Q3 we should normally expect something above 95%, somewhere between 95% and 100%, is that a fair way to look at it?

Look, we're saying we want to run that business up 95% in good and in bad times. And we're not saying we're happy with 95%.

I think we would have some room to absorb rougher years. So that's I think the first point of clarification.

The second point of clarification is that indeed as I think we've talked about in the burden of natural disasters Q3 tends to have half of the yearly run rate which is probably close to $100 million would you say. I think this quarter $81 million of catastrophes plus a bunch of smaller things which quite frankly, probably when you add everything up it doesn't look too far from what a normal Q3 would be.

So is it - should one expect a combined ratio above $95 million in the third quarter? I have to go back and think about it but I would be inclined to see not necessarily.

Okay, good. And then final question is with respect to organic growth.

And I appreciate you gave some growth expectations, line-by-line and kind of suggest to me that maybe the 6% organic growth, give or take is probably a good run rate for the next year or so. Is that a fair characterization?

In aggregate I would say that's at the top end of what I expect. We can produce in that environment.

I don't think the run rate is necessarily far from that but I would be very happy with more than six don't get me wrong but were quick to put corrective measures in place where we see inflation. So we were happy with 6% pre-CDI, we're happy with our capital position which will allow us - just like with CDI to add on top of that organic growth platform.

But our objective is to grow earnings, that's really what we're focused on, and we're grateful that the environment allows us to grow organically at 6% but our eyes are on the growth at the bottom.

Got it. And then just a follow-up to that.

How should we be thinking about unit growth more specifically, say versus what we saw in Q3?

Well, what we saw in Q3 is units were fairly strong. I think when you look at the rate environment, you can expect - I mean unit growth in Q3 were 7.5% with CDI.

So obviously if you exclude CDI you remove probably at least a couple of points there. And I think if you look at what we talked about during the call, including increasing rates in commercial auto, maintaining the sort of rate change perspective that we've seen, like the above 4% in commercial auto, it will be interesting to see how the units react to the actions we're taking in commercial auto at this stage.

I expect our unit run rate in personal prop to be to be pretty good. There is no reason for me to think that the unit growth rate in personal auto will deteriorate, I think we'll have to keep our eyes on commercial lines as we were being opportunistic, both in P&C, as well as in auto.

Okay, that's helpful. Thank you very much your time.

Good morning. Just a few hopefully quick questions, just going back to commercial auto - and I just want to get maybe a little level deeper in terms of what drove some of the issues.

This quarter around the large losses, was it a particular region - like I know you're putting price increases through an operative, is that predominately where the large losses came from or are you seeing more large losses in the U.S. excluding the FX impact, is that where you're seeing it come from?

And then further, is there a particular distribution channel where you've had some issues with - and I'm assuming this is long haul trucking that we're talking about, but is there a distribution channel where you've had some challenges with?

It's all distributed through independent brokers and in fact, insurance. So no to the distribution channel.

I'll let - and I give further perspective on large losses.

If I can give a bit of color on what - explaining the deterioration in results, we mention a few elements between the refinement of our reserve looking at - selecting the parameter based solely on commercial automobile, a little bit the exchange rate impact, and a little bit of large losses impact throughout the year. I just wanted to say that these account overall for about five to six points throughout the year.

And explain about six points of the deterioration. We don't necessarily see these elements as recurring unless there is a further deterioration on the exchange rate and elements like this.

If I look at the large losses, we haven't seen clearly that it's coming from either a single regent or a single region, we have large losses even in the Quebec region where we don't see anybody lead injury in everything. We have a bit more large losses coming out this quarter through the trucking but if I look at it on the yearly basis, it's not necessarily the situation.

So it's not a clear pattern, and also because of the driver and then mileage on the trucking side we do expect to see a little bit more large losses because they are spending about normally 10% to 30% of their kilometers are driven in the U.S. And whenever there is an element there with the BI and everything, we do price and expect for larger losses and we saw some of it this pattern.

But we don't come out right now with a clear pattern saying, we've identified one sources, one element of the large losses.

So the severity is of the U.S. isn't that normal.

Relative to what you've seen in the past excluding the unrest [ph]…

No. I think that the think that affected us this year in the U.S.

it's a pinpointed fact that a lot of our reserve are being reviewed on an annual basis and as people review the reserve they corrected for the exchange rate that may have been open last year at 1.10 and today it's about 1.30. So they adjusted for the exchange rate but that is a one-off element.

Mathieu do you want to add on this?

No, that's true. And just to review for the reserve and the exchange rate change like over the last 12 months and that through the year, that got adjusted but the effect is mainly in the number now at this moment.

And then you mentioned through independent channel but you retain all the pricing and underwriting and climbing, and it's been absolutely.

Absolutely. That's the business we're in, so people don't have our pen.

While people never have our pen but certainly not in commercial auto. You know if I look at the commercial auction action plan it's highly segmented but it's fair to say that trucking is the area where the actions are most robust.

And then just a few number questions. Louis, what's the size of your preferred - your rate rese preferred book?

So the total preferred chair portfolio is about 1.1. And then the reset is about half of that.

Okay. And then, the non-CAT and I know you've given some good explanations for Q3 of this year, do you recall what the non-CAT losses roughly were last Q3.

Was it at all significant, just that so we can do year-over-year comparison?

It was much lower but I'll give you - give me a minute, I'll give you…

And just lastly what you're looking about - the Atlantic Canada, I mean the losses and the winter storms creeping into August. Can you just enlighten me and that or what transpires that it creeps into August.

Yes that's a question that - you're not the only guy asking that question. I've been asked here a fair bit, I'll ask Mathieu to give his perspective on that.

The arch winter condition lasted late into the spring caused by more snowfall, that's me. And those - both got reported late and they got reported through the summer.

We even got a second wave when people went to their that seasonal properties and discovered their trailers with roof issues. So that's July and August, we escalated we escalated, reported to loss time.

And the severity of those losses was higher than expect because of the amount of snow we got this winter, that's color I can provide on that.

All right, thank you.

Okay, thank you.

Thanks. Louis, I think you've mentioned that 6% of your total invested assets in energy?

That's correct.

And can you provide what the breakdown is of those energy assets by common and preferred and fixed? And then I got a follow-up question.

Sure. So, in the meantime I'll just remind you that in our energy sector we're a bit split between the infrastructure, the transportation and the production.

And that's important because it talks to the quality of our portfolio because we're invested there but we believe that our choice of investments has been fairly high quality. So that's important to remember, we just pull out the specific details where we are.

On fixed income or energy as part of common shares is about 20%, and I'm referring to my stats up for information, so it's 20% of our commons, it is 14% in the pref and in fixed income, it's not material. So it's really in the commons and in the pref that we see them, and those are figures at the end of Q3.

And I think you mentioned that there was the $1.55 per share unrealized mark-to-market loss in the quarter?

That's right.

This is rebounded since then, is that - maybe just to get the magnitude of the rebound and where we're seeing that rebound?

We've seen markets rebound and this is a mix, so the unrealized position includes fixed income, prefs and common equities. The three of them together have rebounded.

We had a net unrealized position of $121 million and we're back up north of $100 million since the end of October. So we've seen the gains on the bond side.

The pref unrealized is lower than it was and so are the commons.

So that would be since the end of September, right?

End of September, yes.

People would have noted.

So on the three types of investments there was a rebound since the end of September. So that talks to the EBITDA volatility of the markets.

And hopefully…

I would say that's a positive to the MCT since then, correct?

Yes, that's right.

Okay, thanks.

Thank you.

Good afternoon. Just to clarify that last question, Louis said it's now north of $100 million, do you mean north of $100 million positive now?

That's right. So off the $121 million unrealized at the end of September, we've recovered a bit more than $100 million by the end of October.

Okay. So just a modest negative now if we were to market now?

That's correct.

Okay. And then couple of other question number of questions.

The industry in Ontario auto price reductions, 6.8% I think you've disclosed that, I didn't see the reference to what Intact has taken a price reduction?

Yes, that's at the end of Q3. IFC overall has taken a bit less than 10%.

The difference being that we are reflected as we discussed previously, the impact of '15 already, that doesn't think the first round of filings from the last reform which was the winter discount that will be implemented in January, those were mainly in the month - at end of the quarter, definite one point.

So I think Mario, you know when we say three to five point of reforms coming in terms of cost reduction, probably fair to assume that you'll see that the industry level. I think our point.

Is that a portion of that has you'll see that at the industry level. I think our point is that a portion of that has been reflected in the rate actions we've taken so far and as such one should anticipate something less and that's where it comes to DMT family.

One, another quick numbers. On the preferred share portfolio, could you tell us year-to-date the total amount of preferred share impairments, charges taken plus any realized losses.

I don't suppose there are I don't know if you sold many suggest the impairments if that's the case. Your date.

On the on the overall crash have been down since the quarter and they're now - they went down 152. The specific for year-to-date impairments is thirty eight.

So that's always amount to amount of impairments year-to-date on, '14 and Q3.

And thirty eight is largely credit driven.

So you've not taken any impairment charges and that's where I was going with it - you've not taken any impairment charges as is relates to just simply lower interest rates on the resets?

No. And that's an important point.

our impairments tend to be triggered by credit event sales rather than interest rate triggers.

And this is where the next question is going. Your policy is if the - if the preferred zones an unrealized loss position for 18 months.

This is my understanding of your policy. If there is unrealized loss which is for or more you, impair them.

Is that true as it relates to the interest rate impact?

So I would say that that's a good question and we are currently reviewing that. So that - well we are facing this so the policy as you said is an 18-month policy with simply a timeframe.

At this point though we're challenged by the fact that it's not credit related its interest rate and so we're sort of - doing…

Historically the implements were credit driven.

Sure. I just wants sure if you're going to stay, stick with the policy or revise it because this is a different circumstance, and you're answer is, we don't know.

We're going to refine it if appropriate.

But historically, its credit driven.

I understand that. And then one final question, personal property.

Like Doug, I was a little surprised to see these charges coming through and I suspect everybody also watched these claims and related to the winter storms. My question is, is this not something that should have been anticipated and built into the reserves or is this just such a big surprise that there would be that much now in Atlantic Canada?

I think the reporting pattern was a surprise to us, every month. And there is not an equivalent model that we've seen in the past that would trigger reserving for that reporting pattern.

And Mario, when a CAT happens within one evening of the phones starting to ring after a CAT we know roughly what the ultimate will be because we have a database of CAT reporting models. This sort of pattern is the first time we see that.

So I would say first of all, this was not a CAT this was a 75V winter event. And we were really surprised in June and July that we'd those sorts of reporting taking place in August, it was a shock.

So in theory, one could have put maybe some IBNR for that but we've never seen such reporting pattern.

That's helpful, thank you.

Thank you all for your participation today. The telephone replay will be available following this call for a period of one week.

The webcast will be archived on our website for period one year, as well a transcript will be available our website following this call. As a reminder we will be hosting our Annual Investor Day in Toronto during the afternoon of Wednesday, December 2, and our fourth quarter and year-end results for 2015 will be released on February 10, 2016.

Thank you, again.