Intact Financial Corporation

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

Kai Pan - Morgan Stanley Geoff Kwan - RBC Capital Markets Paul Holden - CIBC Tom MacKinnon - BMO Capital Market Meny Grauman - Cormark Securities Doug Young - Desjardins Capital Market Mario Mendonca - TD Securities

Thanks, Tiffany and good morning everyone. Thank you for joining our call today.

A link to a 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; Darren Godfrey, SVP of Personal Lines; and Alain Lessard, SVP of Commercial Lines; and Patrick Barbeau, SVP of Claims. We will begin with prepared remarks, followed by a Q&A session.

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

Good morning, everyone and thank you for joining our call. Earlier today we announced third quarter net operating income $1.01 per share through absorbing $0.93 per share of cat losses.

It was clearly a challenging summer as many of our customers faced severe weather conditions including multiple hail, wind and rainstorms. As usual, our troops across the country worked hard to help our customers get back on track.

We were pleased to see our top line grow 5% in the quarter all organic. Clearly our new product lines telematics software and improved digital experiences continue to pay off particularly in Personal Lines.

On the commercial side, while growth was negatively impacted by tough conditions in the West. We continue to see benefits from rate increases and the introduction of new products for a sharing economy.

Despite 8.1 points of cat losses we delivered a combined ratio of 97% with two points improvements in the underlying loss ratio. That being said, personal auto’s performance was choppy given intense hail activity and the fact that upcoming rate increases and the full impact of recent reforms is not yet fully felt.

Our commercialized performance continues to be excellent. Our operating ROE remained healthy at 13.4% particularly in light of our strong capital position and the impact of elevated catastrophes.

When comparing ourselves to the industry, we outperform by 680 basis points on ROE for the first half of the year. We ended the quarter with a strong balance sheet, $881 million of excess capital and our book value per share grew 10% for year over the year to $41.47.

Let’s now look at our third quarter results by line of business. So, personal auto grew 5% thanks to our telematics software that continued success of Quick Quote as well as the strength of our marketing initiatives.

While growth was solid the combined ratio deteriorated by 9.9 points to 104.3%, impacted by severe weather, lower favorable prior year’s claims development and some cost inflation. We estimate that weather represented approximately 8 points of combined ratio from catastrophes and other non-catastrophe weather events.

To address cost pressure rates increases are being implemented across the country. This rate momentum combined with our claims action plans, finer risk selection and additional benefits from recently implemented reforms will improve our auto results within 12 months.

When it comes to the industry outlook for auto, we continue to anticipate a rational competitive environment with low-to-mid single-digit growth in the coming 12 months as rate increases are implemented to address cost inflation. In personal property premiums grew 8% as new products and continued rate increases were deployed in favorable market conditions.

The combined ratios of 99.7% included 18.8 points of catastrophes from severe weather. Our underlying results were very good having improved 8.2 points year-over-year on the effectiveness of our profitability actions.

When we look at our performance so far this year, a combined ratio of 96:4 after absorbing losses from Fort McMurray and severe summer weather storms that were well positioned to meet our 95% target combined ratio on a full year basis, even in bad times. In terms of the industry outlook for personal property there is no change there.

We expect recent weather events will prelaunch [ph] defer market conditions in personal property with mid to upper single-digit growth over the next 12 months. In Commercial P&C difficult conditions in Western Canada upset rate increases leading to flat premium growth that said our Commercial P&C business delivered an outstanding combined ratio of 81.3%, one of the best quarters in recent years.

The underlying current year loss ratio improved 3.2 points from last year from the success of our profitability action. Commercial Auto premiums grew 7% in the quarter mainly driven by new products aimed at the sharing economy.

The combined ratio improved substantially by 8.4 points to 88.6% on the heels of strong underlying result. Our actions are working so far and we’re on the right path to maintain low 90s combined ratio in that line of business.

With respect to the outlook for commercial lines, the industry remains competitive but market conditions are firm leading to low single-digit growth in the coming year. In summary, while the quarter’s underlying results are disappointing at 97%.

The underlying performance in our property lines and commercial auto improve meaningfully. A strong testament to the resilience of our operations.

Personal auto was a drag on our performance in Q3, but the actions we’re taking will have a positive impact over the next few quarters. We’re also making good progress on several of our strategic initiatives.

Our product offering for the sharing economy is gaining momentum with the growth of car sharing services in Ontario, Alberta and Quebec. With the coverage we provide to Uber and Turo two leaders in this sharing economy.

The drivers and customers we serve are well insured. We continue to develop innovative solutions to leverage these emerging opportunities.

On the digital front, we’ve reached a milestone with 1 million quotes for our auto products through Quick Quote our online quoting engine. This translates into about $100 million in new business premium since its launch in early 2015.

On the back of this success, we launch Quick Quote for homeowners where customers can get a quote in two minutes on average. Consumers are reacting well to a simpler, faster and easier experience.

On the claims front, after a successful start in Calgary, we recently launched a new service center in Ottawa. It is well received so far, to give you some perspective on capacity.

Our Calgary service center service 2,000 customers since its launch in February. Beyond an easier experience and higher quality repairs, we have reduced the repair time by about 25% for those customers using the impact centers.

We remain on target to open our Toronto location later this month, while Montreal is targeted for early 2017. Finally, we’re also pleased to have made progress in building the strength of our two core brands.

In recent national research 30% of Canadian named Intact Insurance on prompted when asked to think of home and auto insurance provider, up 7 points from last year. This is an all-time high.

Intact Insurance is relatively new brand by truly gaining momentum. Furthermore, belairdirect was not far behind 27% up 4 points nationally.

Clearly the initiatives we have in place are making a difference and we’re on the right path to build Intact Insurance and belairdirect as household names. In conclusion, while we had a tough quarter the business continued to show its resilience.

Our initiatives are paying off in driving solid top line growth and outpacing the industry. Our actions continue to drive underlying results improvement, that being said our team is relentless in driving initiatives to protect our business against natural disasters and improving personal automobile profitability.

In addition, we’ve seen material progress on our strategic initiatives particularly with regards to our digital leadership, the expansion of our distribution and the sharing economy. Our focus on - a customer experience that is second to none combining with our financial strength.

It places us in a very strong position to benefit from the environment in which we compete. So I’m confident that the strategy we have in place will continue to help us outperform the industry ROE by at least 500 basis point and grow a net operating income per share by 10% per year overtime.

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

Thanks, Charles. Good morning, everyone.

Although Q3, 2016 was a challenging quarter for Intact with $166 million in net losses from multiple catastrophes, our operations still generated $137 million in net operating income. Our operating ROE was 13.4%, we have a very strong capital position with $881 million of excess capital and our book value per share is up 10% from Q3, 2015.

Our operations have again shown the resilience in the face of adversity, with solid earnings and a strength of balance sheet. When I look at our overall underwriting activities, we improved our underlying current year loss ratio by 2 points in the quarter to 62.8%.

Thanks to our profitability initiatives. All lines of business contributed to the improvement except for personal auto, which experience some uptick in frequency and severity most of which relates to arise in claims from hailstorms.

Prior year claims development was favorable across our businesses. Consistent with our long-term expectations, but 2 points below Q3, 2015 which had benefited from favorable development in the industry books [ph].

Even if the summer of 2016 seemed long, warm and beautiful for many Canadians some of our customers placed a high number of severe weather events. This resulted in 8.1 points of cat losses, twice as high as last year and well above our expectations.

Given the frequency in severity of catastrophe losses in the recent past, we have revised our expectation for the future annual run rate from $200 million to $250 million half of which are still expected to occur in the third quarter. This takes into account the growth of our business as well as loss mitigation and product changes being rolled out in response to changing weather patterns.

We also expect the firm conditions to continue for another 24 months as insurers adapt to these changes. Net distribution income grew 7% in Q3 to $30 million from growth in our broker network and higher profitability.

For the full year 2016, we expect to report slightly above $110 million in net distribution income and this amount should grow north of 15% in 2017. Our investment portfolio continues to deliver consistent investment income slightly below last year at $102 million as expected.

Although average net investments increased 6% to $13.6 billion from operating cash flows and mark-to-market gains on common and preferred shares, this was offset by lower reinvestment deal. We continue to expect investment income to decline marginally in dollar terms over the next 12 months.

We reported net investment gains in the quarter of $17 million, a sharper improvement from last year’s losses of $64 million. Favorable equity markets led to realize gains on our equity portfolio compared to net losses and high impairment charges last year.

In summary, we reported quarterly earnings per share of $0.91, $0.04 lower than last year as the impact of elevated catastrophe losses was largely offset by net investment gains in lower impairments. A few comments on our financial position.

Our balance sheet remains very strong, our MCT stands at 215%, 3 points higher than at the end of Q2. The improvement reflects capital generated from our operations, favorable equity markets and the phased in of MCT guidelines less dividends and investments made.

Our total excess capital amounted to $881 million at the end of the quarter, while our debt to total capital was 19%. Our investment portfolio unrealized gained position increased materially from Q2 to $258 million.

We executed on our buyback during the quarter purchasing some 52,000 shares for a total cash outlay of $5 million between the launch of the program in the end of Q3, we spent $37 million on the buyback with an average price per share of $87.84. Our capital deployment strategy remains unchanged and while our priority is to invest in growth opportunities, buying back shares at times when the market price may not fully reflect the intrinsic value, is a responsible use of our capital.

In conclusion, with strong underlying results in property lines and commercial auto, we continue to focus our efforts on improving results in personal auto with our usual discipline in energy. We believe the actions we are taking in personal auto combined with the favorable conditions in other lines will drive improved results in the next 12 months.

We still believe there will be continued consolidation of the domestic P&C industry both in manufacturing and distribution and we will be active participants. Our balance sheet is in great shape and we are ready to tackle opportunities as they arise.

Our earnings have proven the resilience to adversity. Thanks to our business and regional mix, the contribution of our distribution and investment activities and the strength of our insurance operations across the country.

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

Thank you, Louis. Tiffany, we’re now ready to take questions.

In order to give everyone a chance to participate kindly limit your questions to two per person and if there is time, you may ask a follow-up. Thank you.

So first question on the personal auto side, you mentioned there are 2 points consideration because of moderate increase in frequency in severity as a result of non-cat weather as well as some cost inflation. Can you give a little bit more color on that to say breakdown between what do you think is kind of one-off non-cat weather and the sort of underlying attrition loss inflation?

And what pricing action you’re taking right now? You mentioned that will be, you expect will fully offset by early next year.

I just want to, what give you that confidence?

Thanks for the question. Kai, maybe what we could do is, is give you a full perspective of the automobile performance not just on frequency and severity, but what we’ve seen at the cat level, what we’ve seen in prior year development and give you a little more on some of the actions we’re taking because at 104 combined ratio for me that warrants color.

So I’ll ask Darren to give you his perspective on that and we’ll address specifically your question in the exercise.

Thanks Charles. As Charles and Louis both mentioned in their opening remarks disappointing quarter to 104.3.

Let me break down some of the components, well I’ll start with cat’s. 6.2 points cat’s in the quarter up 2.8 compared to Q3, 2015.

Mostly attributable to multiple hailstorms in Alberta, clearly exceeded our expectations it was real tough summer for automobile in Alberta due to hail activity. In terms of PYD clearly we see some fluctuations quarter-to-quarter in terms of PYD, we had still quite a swing in this particular quarter with respect to personal auto, 4 points to that gap is attributable to the favorable PYD that came from pools last year.

And also versus some slightly unfavorable PYD in the pools this year, but I should that the pools for Q3, 2015 was abnormally high. Another element of the PYD, is we continue to see development on Alberta BI claims.

We’re not seeing acceleration nothing new that’s consistent with the trends that we’ve seen in the past quarters. On a year-to-date basis, PYD is still at favorable at 3.7% net earned premium.

So just to put that in the context of the quarter. Now when it turn to the current accident year, just over 2 points deterioration as you mentioned little bit of an impact from claims frequency and also from severity and this was offset by slight increase in rates.

So when I look at the rates in particular and I’ll go into more detail here in a moment in terms of what we’re doing for our future rate actions. There is a currently a bit of lag between return and earned right now as far as rates increases in personal auto.

We already have great momentum in the portfolio, as evidenced the gap between the return and earned is higher in the month of September versus the quarter. So when I turn to frequency now, largely due to non-cat weather in Alberta when we exclude the non-cat weather impact from Alberta.

The automobile frequency is relatively flat compared to Q3, 2015. We did see a slight uptick in the frequency in Ontario from a UBI data when we compared to Q3, 2015 we have seen an increase in the number of trips that our customers booked in that period.

We’ve also seen an increase in the length of those trips as well. We attribute these mostly to the favorable summer weather experienced in Ontario, with few days of precipitation in Q3 year-over-year.

The remaining provinces however outside of Alberta offset the increase that we saw in Ontario. On the year-to-date basis, however I should say is that we don’t see this as a longer trend as frequency is down year-over-year.

I should say though, it is clear though that UBI data continues to provide further additional data points, for assisting the build out early identification of potential trends. In terms of severity, slight increase in the quarter again mostly due to non-cat level losses in Alberta similar impact that we saw on frequency.

Driven by more comprehensive claims, more hail claims which have a high severity than other physical damage coverages.

Darren, why don’t we talk about what we have in the pipeline to improve the performance in persona auto?

Sure, so Charles when I look coast-to-coast if I can, so let’s start with Ontario. We have seen and we continue to see normal claims inflation in the system.

The rate increase that we talked about in the last quarterly earnings call is now effective. We continue to file for further rate increases.

In addition in terms of the reforms that we saw in July, we expect to see further benefits from them playing out in the coming 12 months. We expect to see from those reforms an additional 2 points of loss ratio improvement in 2017, as some of those reforms are in a policy renewal affected basis as a [indiscernible] loss of currency basis.

So in addition to the rate increases that we have flowing plus the reform impact, we have mid-single digits of loss ratio improvement already baked into the portfolio in Ontario. When I look at Alberta, as we’ve previously mentioned we increased rates by 8% in Q2, earlier this week we received approval for an additional 2.4% rate effective January 1, 2017 and we’re also preparing future further filings for the Spring 2017.

Look at all those rate changes in aggregates, we have upper single digits of loss ratio improvement already baked into the Alberta portfolio. Not to leave out the other provinces in the Atlantic consistent with last quarter, we’re increasing rates and we also have further rate filings being prepared and again in Quebec we continue to increase rates after a long period of flat or declining prices.

In terms of the rate changes themselves, they are all heavily segmented. In addition our UBI program performing well, attracting a better quality customer.

We have strong new business penetration in Ontario, Quebec and the Atlantic with UBI and will be introducing our UBI offer in Alberta in Q!, 2017. Now if I look at the auto portfolio now on a year-to-date basis, current accident year is flat compared to 2015 with a slight decrease in frequency as I mentioned earlier.

Offsetting a comparable increase in severity together with a flat rate change. When I look at what we see from a frequency, from a severity standpoint, when I look in terms of the rate action that we have, we have strong plans in place, also in underwriting and also in claims actions plans as well.

Just what varies very much by province-to-province, but many of these actions are already in play. So given the right momentum we currently have, what we know will be flowing through the portfolio in the coming quarters.

Our segmentation strategy, improvements in our risk selection models, together with additional Ontario reform impact through to flow through in 2017. We believe that the actions will provide a positive impact on the coming quarters.

That’s very comprehensive, thank you so much for that. And as my second question on the capital management side, you have close to $900 million excess capital and on the merger acquisition front there are recent press report about you might be looking at especially insurance company in Bermuda and also on the buyback front you have $600 million authorization with six buyers in February and you only bought back [indiscernible] out of that.

And there you mentioned your book value grow 10% year-over-year but stock hasn’t moved anywhere. So just wonder, why wouldn’t you be more aggressive on the buyback front.

So Kai, as you know our main priority is deploying capital on growth opportunities. I don’t think we’ll comment on rumors.

But as you know we are on the lookout and interested in the consolidation. So at the first premise in launching the buyback is really doing it opportunistically but maintaining the priority of the capital for growth opportunity that would come about.

So our view today remains the same, we still think there is consolidation to be happening the best use of capital for us is deploying it on growth and on the buyback, we launched it to take opportunities in the market when the price of our stock is well below intrinsic value and that’s what we’re doing and I don’t think our view has changed in that respect.

When I think Kai, when you think about our two big financial objectives. One is ROE outperformance and the other one is net operating income per share growth, both those financial metrics have an important capital component to it.

If you sit on fat[ph] capital just, this depresses your ability to outperform from an ROE point of view and capital deployment as a lever or income per share growth. So rest assured that when we feel that, the excess capital we have is a burden on our performance in relationship with visibility we have on growth opportunities will be more aggressive from buyback point of view.

Great. Thank you so much for all the answers.

My first question was, I know we’re only kind of month into it but there’s been a number of continuation of wind storms and rainstorms and whatnot and just wanted to get any color that you have on, what Q4 is kind of shaping up like and then on a similar note, given what we’ve seen in the past few quarters and I know you don’t want to necessary react to maybe one or two quarters of data. But do you feel like what you’ve seen in the past couple of quarters, you might suggest pricing some of your lines of businesses might need to change from here or is it in line with how you guys think about the business?

So I’ll ask Patrick to give you his perspective on the start of the quarter. Will then ask Darren and Alain to give perspective on pricing in home insurance as well as in commercial lines.

So, Patrick?

Yes, fairly - so far we had after the end of Q3 two events, two main events one is.

Maritimes.

One is the Matthew Hurricane, the day of the Matthew Hurricane that hit the Maritimes and the other one is another rain event in Quebec in last weekend, not the one that we’ve had, 21st of October. Those are the only two events, most of the cat’s we expect in Q4 is usually in October.

So right now it’s not very different than, not what we would expect.

There is not a story I think it is, it is as far as we’re concerned in line with what one would expect at this point in time, that being said look. We came out of the summer with a view in home insurance that more needed to get done.

I think Louis was very clear that we’ve increased our expectation and that translates into what we believe will be continued rate increases despite the fact that, we’re convinced that our offering today at its price is geared to operate sub-95 in bad times and I would say, 2016 is one of those very bad years from a natural disaster point of view. Nine months into the year, we’re at 96% in home insurance, that being said our view is the industry ought to do some more work.

We’re growing in that environment and we will get some more rates in that segment for the foreseeable future and I think this extends our outlook in home insurance probably from 12 to 24 months of the hard market. Darren, I sort of stole the punch there but maybe you want to add a bit of color.

Yes, the only thing I would add there Charles is, in the quarter itself we had just under 4 points of rate already flowing through our personal property portfolio. So we do definitely have right momentum within the portfolio, we have a further rate increases planned pretty much coast-to-coast in personal property.

In Alberta in particular, probably hitting a little harder in terms of segmented rate increase, we’re also looking to further enhance our product to respond to the increase in hail activity as well to, so there are probably some high level changes that we’re looking here.

I think in home insurance I will see despite the natural disaster, this is a segment that we would be very comfortable growing at a faster clip, if the market lent itself to faster growth because we’re very comfortable with our product, we’re very comfortable with our rate position. I think it’s been tested in the past year, we’re seeing the current accident year improved [indiscernible] points and so we like what we’re seeing there and we think the market conditions lend themselves to us continuing the transformation we started in that line of business.

I think we’re spending a bit uptime in commercial lines in particular property, I think we like what we’re seeing there as well, but I’ll let Alain talk about that.

Thank you, Charles. So Geoff maybe a bit of context, we said we believe the market is in a firm position not in a fairly firming but basically remaining firm.

We pushed in the last quarter 3% of rate on renewal and our retention is still holding, so that lets us that the market is still in a position to accept rate increase and experience rate increase on that side that’s the 13th quarter in a row that we’ve been pushing rate. It’s slightly lower than it was a year ago more in the 4%, but it’s still continuing on that.

And we believe like we said what keeps the market firm is low interest rates and there is certainly no sign of interest rate, we’re moving upwards and also elevated losses in the market and the situation like Fort McMurray in the second quarter is another point that leaves the elevated losses very high. So we think there’s an opportunity and a situation where the firm market will continue for a few quarters.

On the commercial auto side, clearly the trucking business was really firming and we’re seeing in that market a very firm market. On the regular automobile although things are very competitive, we see signs that there is a bit momentum on increasing rate.

Our rate increase in the third quarter are in the range of about 2.5%, but that’s on the top of the product reform in Ontario, we’re talking of an effect of about 4.5% rate increase in total and that’s higher than what we saw in the first and second quarter and at that level, our retention again is still holding. So we see a bit of momentum on the automobile and that is probably on the fact that 2015, we saw the industry combined ratio in commercial auto probably north of 100%.

So there is a need for increase on that market, so we see good momentum on that side.

Okay, thank you for that. And just my second question, just following up on Kai’s question around the M&A.

I understand you obviously we’re not going to talk about specifics and actions, but can you maybe talk about the tone in the industry or what you’re looking at, is it things are bit more in a holding pattern or maybe if you can just provide a little bit more insight about what you may be looking at or what maybe going on domestically as well as outside of borders?

I think, if I look domestically there have been transactions this year. One notable one for sure and so our view has not changed.

I think domestically near mid-term 15 points of market share will change hands. I think there are disconnects I think between what people might expect and what the value might be, but we think consolidation will continue to take place in the domestic market place and this is not a long dated forecast.

I think when I look at distribution in the domestic market place, that’s very hectic. And we’re deploying capital in small chunks but in businesses that are doing really well and I think this will help fuel our distribution profit in later in 2016 but more importantly in 2017 as we mentioned, we expect to grow our distribution income, north of 10% and portion of that is driven by the fact that we’re able to deploy capital there and could deploy more or would deploy more.

I think in terms of, so that’s priority number is to deploy capital here both from a manufacturing and distribution point of view and I think it’s a good environment for that being said, there are very clear thresholds that were using to deploy capital and so long as we cannot meet those thresholds holding on to our capital. I think when it comes to abroad, I mean the risk consolidation at the industry level outside Canada as well and I think we’re still prudent from that point of view but as we’ve talked to investor over the past few years where we have an interest in exploring what’s going on abroad and one shouldn’t read rumors and what I just said, as a validation of these rumors at all.

I think our thesis has not changed there, there are priorities is in Canada.

Okay, great thank you.

First question is related to the commercial auto segment and the on boarding I guess of Uber and Turo. It looks like rate increase is up about 15% year-over-year.

I was just wondering if you could serve breakout what would be “organic” rate increase and what’s related to Uber and Turo. And I guess how do you see that evolving as you bring Quebec online for Uber and potentially other sharing economy related sources.

By the way we view Uber and Turo as organic as well, but we might give you a perspective, if we excluded those numbers. These are big growth levers.

I think, without point and give you an exact number to tell you how much we collect from Uber and Turo, I can tell you that the majority of the growth you see in commercial auto in the quarter is driven by the sharing economy that was about Uber and Turo. Like I said, this is - we have basically three months of operation with Uber, which is the larger share of that part and technically this is usage based of that.

So how much will that grow is very much related to how much it’s going to be used with the adding of the automobile piece in Quebec starting on October 2017. We’ll have new premium coming in for that size, but as Uber operates in more city, as they become more popular in the city, they’re being used.

Our premium will grow on that side but being only three months not having a view on the seasonality of the usages and things like this, I think it’s early to say to what extent and to what level it will grow, but clearly this is a major impact on our volume in the next 12 months.

Okay and then second question relating to investment income. Just want [indiscernible] tick up in income from loans and other.

Is there a shift in strategy from fixed income to potentially other sources of yield and I guess a follow-up to that is, what are some of the strategies that you’re employing to enhance yield either in upcoming quarters or down the road?

Yes, I think overall we’re not reaching for yield. Our asset mix has not changed meaningfully, we’re very much fine tuning the products we’ve been operating in for a while, I think Louis you might want to give some more color.

But look our thought process here is that, we’re operating when ROE targets and when we operate in the low interest rate environment our troops on the front line know that they have to step up from an underwriting performance point of view. I mean this is a communicating ways and reaching for yield to use the returns that’s not how we run the business.

I’ll let Louis give a bit as, of his perspective there.

Well you’re right, so I think we’re trying to diversify the portfolio a bit, but it’s marginal, it’s on the edges and we’re not trying to increase yield through taking more risk, that’s very clear. I would say from another interest income from loans, those are related to our broker investments.

So in some cases we have loans, some cases we have equity and the uptick is what you’re seeing from the broker loans.

Great, thank you.

First question is related to your reinsurance coverage and understanding you’re probably negotiating January renewals, so might be a little sensitive there, but want to ask following the Q3, where the cat losses were a matter of frequency versus severity, is you’re giving any thought in terms of changing the structure of your reinsurance coverage works to give you more protection against these small cat events?

So maybe Alain you could give a high level perspective on the reinsurance market conditions.

Yes. I think like you said Paul, this is a bit sensitive at this point, so as we’re renewing in January 1, but when we look at our price and our situation and the market evolving reinsurance it’s pretty much an international market.

So when you look at what happened in Canada and when you look happened worldwide, you see probably a different picture as there have been cat mainly in Q2 and some frequency in Q3 in Canada. So clearly the Canadian piece of the reinsurance is affected and there will be maybe some adjustment on some of the bottom layers, but the overall international cat market has been very good to reinsurance and we believe it’s still a favorable environment for buyer.

So we’ll see probably a different approach on different layer of our program for 2016 and I think that gives you a bit of a picture of internationally. I think we have to look at Canada but we also have to look at the international market and this has been very favorable to reinsurance internationally.

Well I think that puts us in a favorable position overall on the program, but clearly there will be some thinking some adjustment on layers.

For me Paul it’s not very sensitive, let’s be very clear. At the top of the program, there’s a lot of capacity, there’s a lot of option, there’s a lot of people who want to participate in our program.

At the bottom of the program, it might get a little more expensive but our attachment points in relative terms is very, very low so for reinsurers who might try to get better condition than they deserve, we can easily just not reinsure the bottom of the program. So it’s not very sensitive, we have a bunch of options from a negotiation point of view that we’re prepared to act upon and as such, we’re excited about the renewal season.

Your second point is about frequency versus severity of events. I think that, you folks understand well natural disasters what it means to products, pricing and so on.

And there is, so much margin that we should pay to reinsurer to avoid noise because I think if investors understand the noise might as well keep the margin for us and explain it from quarter-to-quarter. That being said, if there are opportunities and if there is capacity to reorganize around frequency of lower event, we’ll explore these as we have with the aggregate cover last year, we thought there was a market opportunity.

So for us when it comes to reinsurance everything is on the table and we’re looking forward to the negotiation that is taking place these days.

Yes, thanks for that. And then second question is related to growth and distribution income.

So your guidance for 2016 was 10% or higher, we’re running at 5% year-to-date so does that mean that there is something that hasn’t transpired in terms of growth that you would have thought was going to transpire at the beginning of the year or we’re just looking for really big Q4 result.

And also you heard our guidance for the full year just above 110. We gave 10% guidance last year that will take us closer to 115 and I would say, the GAAP is really, the actual results of big year and how that impacts the profitability of each of the brokerages.

With regards to 2017, when we actually plan the results for individual brokers including past acquisitions that’s the rate of growth we’re expecting to see next year. So it’s obviously improved profitability next year and just absorbing past acquisitions and the impact they will have on our results.

I think Paul it’s important to keep in mind that the portion of the distribution income is profit sharing from the carrier that are represented in our distribution operation and when the industry’s performance diminish a little bit, the profit sharing that a broker gets and that some of the brokers were invested including BrokerLink which we own, will diminish a bit and you’ve got probably a few million dollars below plan there. That also means though that, manufacturers like Intact Insurance would end up being less profit sharing, when the performance is less than what we have anticipated in part because of natural disaster.

Understand, that’s helpful. Thank you.

So directionally no change from a distribution point of view as far as I’m concerned. Very pleased with the margins there and the return on the capital deployed.

Just continuing on that distribution income, did I hear Louis right, looking for north of 20% growth in 2017 was that correct in distribution income?

No, north of 15% next year.

North of 15%, next year?

That’s right.

Okay.

It might be above 110 this year and then add 15%, a bit more than 15% next year.

Okay, 15% as rate of north of 15%.

That’s right.

So 15% on top of 110.

Yes.

Right and then just with respect to the increase cat load, help us understand how that translates into pricing in personal property in particular and maybe some of your commercial lines. Like presumably if you’re thinking of higher cat load, does that not translate into increase in prices associated with these kind of property.

No, absolutely and I think Tom. That’s the point I was making a little bit earlier.

I mean we’re seeing the current accident year performance and home insurance improved by 8 points. Rates are up in the single-digit rate or -ish percent and we will increase that in the coming months across the land and our view is that the firm market environment will continue probably beyond 12 months in the home insurance and so absolutely baked in our thought process and in our plan.

I mean, we wouldn’t increase our view on cats without taking action on rates and product, that being said I think the product right now is geared to generate sub-95 in real bad times which is 16 is an example, but we feel the market. As people come to the realization that natural disasters are more important than they were, we feel the market offers the opportunity to move on rates and so we think that will be in a hard market environment for a good 12, 24 months there.

To a lesser extent in commercial lines. I would say because a big portion of the natural disasters home insurance driven, has an impact in commercial lines but to a lesser extent.

So if we were to take up our cat load in personal property, you anticipate that to the underlying combined ratio, should for the reported should still some, the underlying combined ratio should adjust accordingly and then we would sort of come back to the same kind of reported combined ratio, we would be thinking of probably increase in cat load, is that what you’re sort of projecting [indiscernible]?

I think that it fits the - it’s not a bad way to read this Tom. Everybody has a view that defer from one another which is good, but directionally speaking our actions are very consistent with what you just described.

Okay, thanks for that.

One of our global competitors recently was quoted as things [indiscernible] interesting and I wanted to get your reaction. He was talking about the underwriting advantage that you could get from a broader insurance model and he was quoted as given example, he said if you’re a pension customer you’re 6% less likely to claim on your home insurance and they had algorithms that can use that to their advantage.

I’m just wondering your reaction to that or maybe your thoughts on this issue of a broader product offering and its impact on the ability to underwrite better.

Well I think, so I’m not sure who you’re referring to and it doesn’t matter so much, it’s an interesting point, there’s no doubt about that. I think that we observe - we establish at Intact the expected profit per customer with all the information we have on customers including other products they have with us.

And if I look at, the segmentation work that our actuaries and data folks are involved in and I stack the predictability of variable in order of importance. I would see that having other products such as home insurance and predicting car insurance is interesting but far and less predictive than the sort of stuff we collect on telematics, for instance and so on.

So I wouldn’t deny that this has some value, but I think in the world of productiveness I would say other products would be low on the Totem pole so to speak compared to other rating variables and as you might know we’re studying 2.5 billion kilometres driven from that data we’ve collected from our customers in the past couple of years and observing 15 new raw data points, 30-ish derived data point and the sort of stuff we find in there in terms of risk selection is probably more powerful than anything we’ve worked on before. So my view is that with, additional data sources big data in particular that’s where the future is in terms of predictability more so I think than the other products that one might have.

I’m sure that’s some predictive value, but there’s nothing like Focus [ph] when it comes to outperforming the market.

Thanks for that, very helpful.

Louis, so I first the - you mentioned something about and I apologize because I missed this, it was an increase to $250 million from $200 million, can you clarify what that was related to again? Sorry.

Yes, that’s the future run rate for cat’s. So we’ve been indicating that our expectation was $200 million in past, raising that to $250 million for the future but we still maintain that half of that will occur in Q3.

So that’s our expectation for cat loss in the future.

Okay and then the other item, you mentioned that there in personal auto 2.3 points of non-cat weather losses, what’s the comparable number in Q3, 2015 do you have that handy? And if not, we can follow-up.

No, it’s about point lower, than.

Point lower, okay and then just lastly, Charles and I know you’ve mentioned this on.

Doug, I think when explaining non-cat frequency numbers and we’re seeing a frequency up mildly in the quarter that’s in large parts, whereas coming from.

Okay, so even if we back those two items out, you still have the loss ratio deteriorating but it’s as a result of what you just mentioned essentially.

Right.

Okay and then just lastly, it looks like the prior year reserve development as a percent of opening reserves is more in line with what your historical average has been, so 3.6%, is this? I know I’ve asked this question before it feels like a more normal quarter from prior year reserve development, is that fair characteristic or is there anything I’m missing either positive or negative that you think this is too low of a number or too high or a number?

I think directionally you’re reading this right, but I would say personal automobile probably has less favorable development than what we would like to see.

Okay, perfect. Still though I’ve got.

Not favorable but less than probably what one would expect in auto.

Okay, thank you very much.

A couple quick questions here, first one just on commercial auto was there anything unusual happening in the quarter just with respect to premium, written risk was down but premium was up pretty significantly?

Yes, good observation Brian. Alain, why don’t you give a perspective?

I would say Brian, when it comes to commercial lines we’ll always be cautious about the number of risk because there’s a lot of noise in going that and in this case, what we see there is probably the biggest impact is on the sharing economy where we see multi-million dollar premium but I think for the sharing economy in total we have about six or seven unit. So I think that throws the number completely off and after that the unit are affected by [indiscernible] policy single vehicle and it can be $600 or $700 compared to the other side multiple fleet or where we have lots of premiums not as many units or anything so, I think, the true exposure of what’s happening is really measuring the premium and this is how we compare to the market because the unit considering the fact that the risk are far from being homogenous can be really thrown up in either direction with a few little things.

But I think in general, Brian fleets tend to skew bit time the relationship that we risk or units and premiums from quarter-to-quarter.

And maybe as an add-on on the earned piece, all the volume that is coming from the sharing economy is on a written earned basis because we’re basically are earning as we write every usage based on every quarter. So there is a bit of disruption also going on between the written and the earned coming from the sharing economy.

Great and then Charles just a quick update, how the speciality growth is going right now, commercial?

So specialty lines is doing very well. We’ve announced the creation of a new division in May under the leadership of Joel Denancio [ph], we’re making good progress on that front.

The combined ratio in that segment is solid. I’ll ask Alain to give you a bit of perspective on the growth of that division, but certainly making excellent progress there.

So there’s a lot of lines of in business in the speciality lines, but the growth in the quarter is about 9.2 again a lot of that is driven by the sharing economy, but we’re seeing a very good momentum there. I would say not only on the volume but also on the level of expertise and people we attract where the objective was to grow our line of business and grow our expertise.

So I think this is really moving in the right direction, we have probably within that two lines where we’re doing remediation like we said trucking is really undergoing a lot of corrective action and some large account in one of our provinces are also undergoing action there and that’s put a drag a bit under growth, but 9.2 in the quarter that’s close to our target to reach $1 billion in five years. And on the combined ratio results are very good, 80.2 so far in the quarter in 2016 and 85.55 for year-to-date so results are really in line with where we want them to be.

Yes, so I think we’re trying to grow that business sub-90s and this is a segment of the market where we’re under represented so you’ll understand our appetite to on one hand not disrupt the market, on the other hand be much bigger in that market.

Thank you.

Charles, you went through a pretty comprehensive list of pricing increases in personal auto and that you’ve done all the work you need to satisfy yourself that you won’t be giving much up from a market share perspective but what have you done or is it safe to say that from a political perspective that there is a political will for those price increases and that you satisfied yourself on that front as well.

So what we’ve talked about this morning Mario is what has been approved as oppose to some of the other actions, we will take and the issue right now what has been approved that’s not yet rolled through the earnings, but it’s in the system being written at the moment. So in relationship with what we’ve been talking about today I’m very comfortable.

No, so I may have misinterpreted then, there was no comment about expectations of future filed for rate increases.

Not the quantification that we’ve talked about. I think we might have mentioned we will potentially take more in the future, but what we’ve talked about in terms of concrete actions is in the system.

So the reference is then to low single-digit or perhaps mid-single-digit improvements in the underlying claims ratio, those are doable with the already approved rates increases, not future rate increases.

Yes.

Okay, that’s helpful.

That’s exactly right. I will say this Mario, though the product in automobile insurance is a framework the government provides.

I mean the government designs the products, they establish the cap on minor injury and so on and they certainly have a role to play, we’re very active in all jurisdictions, the Ontario Government is certainly very proactive as well on that front. The last front of reforms that they ruled out were really looking forward to see their impact in the coming period.

I don’t think one should assume this will not get political though. This might, but I think people are fairly proactive and where people are not proactive we’re spending a lot of time with them to show how they can help themselves in the exercise by modifying the product.

Or year and half away from another election on Ontario, anyway, so this won’t be topical for some time I suspect. Let me just sort of drive onto another issue though, and this is very specific and perhaps it’s too granular.

The reserve development in auto, you made an important there that it’s not what you wanted to be, is there any, can you point to anything in Ontario AB or Accident Benefit that may have affected the reserve development, this quarter and may perhaps on a go forward basis.

No.

No, nothing there.

No.

Appreciate your time. Thank you.

Thank you all today for your participation. Following this call, a telephone replay will be available for a period of one week, while the webcast will be archived in our website for a period of one year.

A transcript will also be available in our quarterly financial archive. Our Q4 and year end 2016 results will be released on February 8.

Thanks again and this concludes our call for today.