Intact Financial Corporation

Dennis Westfall – VP, IR Charles Brindamour – CEO Mark Tullis – SVP and CFO

Jeff Fenwick – Cormark Securities Paul Holden – CIBC World Markets Doug Young – TD Securities Tom MacKinnon – BMO Capital Markets Mario Mendonca – Canaccord Genuity Bryan Brown – Macquarie Research

Thanks, Martina, and good morning, everyone. 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 applies to our discussion on the conference call today. Joining me today are Charles Brindamour, Chief Executive Officer; Mark Tulles, Chief Financial Officer; Martin Beaulieu, Senior Vice President of Personal Lines; Alain Lessard, Senior Vice President of Commercial Lines; and Mathieu Lamy, Senior Vice President in Claims.

We will start with formal remarks from Charles and Mark, followed by a Q&A session. Martin, Alain and Mathieu will be available to answer your questions during the Q&A session.

With that, I will ask Charles to now begin his remarks.

Thanks, Dennis and good morning everyone. Before getting into the second quarter’s results I want to first make a few comments about the events of the past six weeks.

I can say without hesitation that the number and magnitude of catastrophic events that we witnessed are unprecedented in my 21 years in the industry and with Intact. The flooding in Southern Alberta was unique not only because of the volume of water involved but also because entire communities were devastated recover efforts will take months and even years for some areas.

I am confident that we have the people and the expertise to be there for as long as it takes. Our promise is to get customers back to their normal lives and we’re more committed than ever to doing that.

The tragedy in – is beyond anything I’ve seen before given its atrocious nature and the devastating impact on the lives of many individuals and families in that community. Within a few hours of the accident we had a fully functional mobile unit on site and our people were there help our customers in those strange times.

Our thoughts are with these families. I was on site and both these places and as the we’re fortunate to see our people in action as they helped our customers.

I then impressed by the speed of their response but more importantly the empathy they displayed in those difficult times. I want to thank our people on location as well as across the country went beyond and above to respond to these and other events this summer.

Despite the $0.92 per share in total losses from catastrophes this morning we announced second quarter net operating income per share of $0.89. Our combined ratio of 97:5 reflects the resilience of our business in light of these events.

Continued strong performance in automobile insurance and improvements in our expense ratio were the drivers behind the underwriting profit. From a top line perspective premium growth of 10% reflects the continued successful integration of Jevco as well as solid organic growth.

I am pleased with our ability to leverage the Jevco products across our distribution platforms. This has offset for more than offset by the expected impact we’ve seen from re-underwriting parts of the acquired business particularly in commercial lines.

Our earnings over the past years of generated and operating ROE of 14.4% and a 9% increase in book value per share. From capital perspective we’re comfortable with our MCT of 197% and expect to maintain it between 195% and 200% through the remainder of the year.

The frequency of severe weather events in the past few weeks has made it clear to me that the sustainability of home insurance in its current form to being challenged. While we’ve made meaningful progress with underwriting profit on average over the past three years in that line of business our approach needs to evolve further given the environment we face and will likely face in the coming years.

So while our 3,100 claims employees were focused on helping our customer. Special task force compose the folks from cost to cost busy themselves playing out a robust plan to be implemented in the comings weeks aimed at ensuring the sustainability of our offer in the coming years.

The plan we have in mind will focus on ensuring customer have a better understanding of the risk they face and what they can to do better adapt to climate change. We will further implement meaningful rate risk selection as well as product actions.

It’s issue not one solely affecting the insurance industry rather society as a whole and as such we will work and support communities across the country to raise awareness and help provide guidance as to how they can better protect themselves against the impact of extreme weather. We expect our plan to generate a minimum of 10 points of combined ratio improvement in that line of business.

Moving to automobile insurance, our view is largely unchanged from the first quarter. We are operating in an where both competitors and regulators behave fairly rationally and cost have been generally stable in the recent past.

Understandably Ontario has been a source of concerns with investors in the past few months. It has been a source of concern for my team and I as well.

But our view has not changed. While it will be difficult to achieve we continue to work with the government to bring cost reduction in the system to improve affordability for Ontarians.

In their quest to achieve 15% reduction overtime the government understands that meaningful cost reduction measures will be critical to ensure availability of the product given the fact that the industry operates at breakeven at the moment. We will continue to work with the government and the insurance bureau of Canada to identify and quantify additional cost reduction measures.

We expect new regulations resulting from the budget to become available in early fall these will like lead to rate actions in the first part of 2014. We are pleased with the 50% reduction in mediation backlogs that the government has engineered so far in 2013.

This is in my view another example of their focus on improving the environment. We expect the backlog to have disappeared by year end this should help alleviate some of the entrant uncertainty in the system.

It’s important bear in mind that the direct consequence of sharp reduction in mediations is an increase in arbitration. So during the first four months of 2013 the number of industry arbitrations increased 37%.

Now due to our proactive approach to managing our files and dispute I have seen arbitration have increased only 7% beyond that our view of the Ontario market is largely unchanged. We feel strongly about our ability to outperform in that market.

When it comes to our outlook for the industry we foresee similar growth in the near term to that of the past 12 months. However we do expect the current hard market conditions in personal property to accelerate meaningfully for the foreseeable future.

We continue to expect firming conditions in approach one quarter of the commercial CNC industry in 2013. And we think that the low interest rate environment and that abated losses from catastrophes should support our outlook.

Turning to the industries we do not expect the industry to reach its long term average of 10% in the next 12 months largely due to elevated cap activity which has already materialized. Looking specifically at Intact financial we believe we will continue to outperform the industry’s ROE by at least 500 basis points.

Mark will provide update on our integrations in a moment but clearly we have made some good progress in the quarter. I continue to be impressed with our employees dedication and want to thank them for their hard work in ensuring our customers and brokers continue to receive top notch service.

In conclusion I believe the discipline approach we take towards operating our business will continue to serve us well. I am confident that we will confront new challenges with the same level of determination that has brought us to where we are today.

Given the quality of our operations and the flexibility provided by our financial position we believe that we will continue to outperform the industry and defend our superior level of profitability. With that I will turn the call over to our CFO, Mark Tullis.

Thanks Charles. Last month southern Alberta experienced storms and flooding resulting in historic levels of damage to the homes, autos and businesses of insures in the Calgary river areas.

Teams from Intact immediately went to work, the first day we began to transform an industrial building on the north side of Calgary into a claim center with 100 desk and computer connection as our offices in downtown Calgary were closed due to flooding. Public transportation were shut down so we chartered private buses so that employees could go to work.

We brought in claim staff from throughout Canada and within three weeks we had visited and performed initial evaluations of virtually all of the claims. It will months before everything is back to normal for the people of Alberta but Intact moved quickly to help our insures begin this process.

We have shown the same response to the Toronto flooding and the tragedy in – events like these separate world class companies from the rest and Intact has been up to the task. With this as a back drop today we announced second quarter underwriting income of $42 million with a combined ratio of 97.5.

Strong results in our auto lines of business and strong property results outside of Alberta particularly Ontario proved once again the advantage of diversification both geographically and by line of business. Both auto lines of business had combined ratios below 90% despite the elevated – losses.

Personal auto particular had a strong quarter with a combined ratio of 87.2%. Our 14% growth in premiums reflects the addition of – as well as solid organic growth.

The combined ratio on commercial auto remained excellent at 89.6% although higher than last year’s exceptional performance. Our personal property line of business has been most affected by the recent storms with a combined ratio almost 9 points higher than last year due to the CATs.

As Charles mentioned we are committed to mitigating our CAT exposure for this line of business and we are talking action on multiple front to build the sustainable product offering our actions will include product changes and risk selection as well additional rate increases starting on the fall on top of those already in the system. Our commercial P&C business also experienced elevated – losses amounting to $40 million in the quarter which in conjunction with a higher level of large losses led to a combined ratio of 108.2%.

As with personal property we are reviewing our product in underwriting in light of the new climate reality. Our expense ratio at the total company level was 0.9 points improved versus 2012 this change was driven by a drop in variable commission from the lower level of profitability in the quarter and also from acquisition related expense synergies.

Our effect tax rate of 14.9% reflects higher proportion of tax free dividend income relative to underwriting income which was lower due to the CATs. Our net investment income of $102 million was up 7% from a year ago this was primarily due to additional investments from – a portion of which included dividend paying common shares.

Our market based yield of 3.8% was up from 3.4% last quarter with the increase in yield due to the drop in market value of our investments driven by higher bond yield and weak Canadian equity markets. We expect the low interest rate environment to continue to weigh in our results and the near term and we expect second half net investment income to be similar to what we recorded in the first half of the year.

Our financial position remain solid at the end of second quarter with 486 million in excess capital and value per share 9% higher than a year ago. Our MCT decreased to 197% on the yield of the CAT losses our share repurchases and market driven changes and other comprehensive income.

We intent to manage our MCT remain between 195% and 200% through the remainder of the year. Since introduction of our MCIB last quarter we have purchased 1.8 million shares at an average price of $59.35.

We will continue to approach the MCIB opportunistically bring up or down depending upon opportunities in the market volatility in the environment and capital availability. We continue to make good progress on both of our integrations whereas the Canada system shut down is on schedule we maintain our 100 million after tax synergy’s target with a run rate at quarter end of $87 million.

Most of the remaining synergies will coincide with final system shutdowns in early 2014. The impact on growth from cross selling the Jevco product sweep within our distribution platform remains better than expected with the second quarter traditionally the strongest for Jevco.

We have completed our review of the rates and segmentation for non-standard auto and motorcycles and our re-writing portions of the Jevco portfolio where required. Greater than expected synergies primarily from claims will enable us to reach our initial $15 million after tax synergy estimate by the end of this year, a year earlier than previously expected.

Our new after tax Jevco synergy estimate is 23 million after tax by the end of 2014. The storm season is not over as we can see from the three small caps of the past two weeks and its necessary we will provide further guidance to the market later in the quarter.

However in this environment I am particularly proud to work for a company that can response so quickly when our clients need us most. Our people responded professionally and with empathy for our clients during where it’s been a difficult summer for thousands of our customers.

These challenging times best illustrate the resilience of our business which along with our strong financial position will enable us to take advantage of opportunities in the market and to boost our long-term earnings potential. Combined with our disciplined approach to the business we have a strong foundation for continued profitable growth.

With that I’ll turn the call back to Denis.

Thanks Mark. Martina we are now ready to begin the question period.

HI, good morning just wanted to start off today with for the discussion on the coming changes around the Ontario rate reductions Charles if you give us little color there about the process and perhaps rough idea of the timeline. You just described me may be a little more color what is there be at the process just give me some comfort that it’s been done in orderly fashion and how they gone their consulting with the industry surely you are going to get those cost reductions when they sort of put those rate reductions and do you have a sense of is it 15% you said might be partially implemented beginning of the year so is there timeline for rolling up the rate decreases as well?

Yeah I think the government understands that this is a complex process because you have to make changes in the system. And as such I think very responsibly aim at 15 and that will take place over number of years.

The budge that will be translated into regulations in early fall as a number of ingredients in there to tackle first portion of the rate reductions whether its reinforcing definition of minor injury whether its regulation of clinics toll trucks and so on where number of measures in there which are really quite beneficial I think and will likely translate into rate impact we’ll see what these regulations actually look like in the coming month or two and following that we’ll reflect that in our rate so as to have commensurate impact on premium with the cost reduction measures that they are putting in place. The fact that it is an environment that is evolving the fact that it is a complex environment really calls for very tight cooperation between the industry and the government to find measures that will be effective bringing affordability in the market.

And there has been lot of work between both parties and the insurance bureau of Canada that’s been very active on that filed with the government and the nature of these interaction and all constructive they’ve been giving me comfort that headed in the right direction there. But I think this is not a walk in the part 15% we’ve said it all along it’s a big number and therefore that will take time to materialize and I think we’ll see a portion of that I suspect a fraction of that materialize in the coming year.

But process so far has been good. I don’t know I think you want to add to this?

I think this is right in line with what I see in the relationship with Cisco with the Ministry of Finance where I think they want to do things right. They are expecting that within the next couple of months the process will be better defined and that the rate reductions would start flowing not 15% but just that Q1 of 2014 or so that market should start seeing great reductions to reflect the cost.

We’ll see what’s in there I think I mean these guys are smart and responsible in my view. And they understanding industry operates at the break even at the moment.

And they know that as costs reductions don’t come along there will be availability problems. And this is not an empty threat I mean that’s years ago.

They completely understand that and I think we want to avoid that because that would be a much worse outcome for Ontario. So a great confidence in the leadership on that front.

Okay. And may if I just follow up in terms of where we are today on the Ontario market and we saw TDS today take some additional strengthening charge there mentioning some more recent developments in Ontario auto.

Is this something that’s specific to TD and if you like strengthening you took last year is adjusting for I guess what they’re seeing today?

These guys are smart, they are disciplined I think they are very good and when they notice or when they talk I certainly pay attention. And I try to see if there are parallels in our business it’s tough that from the outside to know exactly what we are talking about.

I can tell you that we have been following the reforms that were effective in September 2010. We knew that injury costs were increased by close to 25% that’s something we’ve talked about for two three years now.

And we in September 20110 increased our pricing or reflected that in our pricing assumptions reflected that we’re reserving assumptions and as a result increased our reserves gradually over the past three years to reflect that assumption. So not hard for me to judge but these guys are smart, they are disciplined and I think, I pay attention to what they say.

So we’re pretty confident with what we’ve done and quite frankly we have not notice on the bodily injury front meaningful changes in the environment. We have seen an increase in that addition over time may be not yet at the level of what we expect to the north we’re reserving for but it is early and therefore we remain cautious on that front both in pricing and reserving.

Okay. Thank you very much.

Thank you, good morning.

Good morning Paul.

Within your results you mentioned on the personal auto side that the core loss ratio picked up year-over-year and that was due to increase in severity which I think you quantified at 6% year-over-year so curious what’s driving that severity of it, if it’s not

Well I think that’s nothing. Well when we look at the severity in the quarter it’s increasing 6% versus last year.

We don’t’ see any trend in litigation or in patterns that would lead us to believe that there is a trend there when we look at the last three or four years we notice that this is a fairly stable severity level we had a small adjustment last year that decreased somewhat the severity in the quarter. So this is we are not concerned by what we’re seeing in this particular quarter.

I think current excellent year deteriorated by a couple of points indeed driven by current increase. And we’ve seen that in number of jurisdictions here Alberta was up a bit, Ontario was up a bit and that’s now focusing the – denominator there might have been did understated so not an area of concern.

Paul given the noise in the environment I can tell you that Dennis and myself I spend time with people in the field to make sure that we were not missing anything from a trend point of view either in AV either in VI, Ontario, either in VI Alberta. So there is activity but not much different from what we anticipated.

I don’t know – if there is anything you want to add there.

I think in Q2 our view remains unchanged on the benefit of the reform in VI and in AV.

Okay. So if I understand the answer correctly then we should not expect to see that same type of 6% cost inflation in future quarters?

Is that the correct way to interpret that?

Yeah I think that’s not the right way to interpret that. I think we talked about 6% we probably should talk about the fact that there is – offsetting that as well and that’s impart why the currently accident year is not up 6% it’s actually up 1.5 or 1.6%.

Okay. And then in terms of Alberta the rate part approved to 5% increase for mandatory coverage factors like for November this year would you anticipate that you will be taking all 5 points of that?

Yeah.

And then in that case do you anticipate that 5 point increase is sufficient to offset cost inflation or is there other options you might have to take with optional coverage?

Well the 5% on the mandatory coverage was against the an indication by both the board – and the IBC – of low teens. So we don’t see this as being the full remedy to rate that – where for the industry so there will activity also on the optional side of the product where as you know the rate approval process is not that stringent.

Great. And final question is with respect to reinstatement premiums, obviously it was a fairly meaningful number in Q2 and anticipate there will be something in Q3 as well.

Any way you can quantify what the number maybe in Q3 for us? And remind us if there is any kind of – on the number of times you can reinstate your reinsurance coverage in any given year?

Yeah so the premium there is actually a separate premium for each layer of coverage and since the event in Q2 was larger than the individual event in Q3 in reinstatement effect will be smaller we are maybe looking at sort of half the level in Q3 so far assuming there is not another event that’s what we looked at in Q2.

Okay. That’s all the questions I had.

Thanks.

Thanks Paul.

Hi good morning.

Good morning Doug.

First question just Charles in your discussion with the first question, the question around the Ontario auto and how see it unfolding it sounded like and correct if I am wrong you think that the cost mitigation items will be determined first and adopted first and then the rate reductions will take place is that how you see it unfolding did I hear that properly?

Yeah I think the framework for the cost reduction will I suspect be laid out in the regulations I haven’t seen the regulations yet I am speculating to a certain extent but that’s the objective of translating the budget in regulations and once we see that we will reflect that in pricing. I think the pricing exercise will like be an exercise as well of making sure that the assumptions we are making about the impact of reforms of September 2010 are in line with the reality as we see it today, that’s the other element that I think will part of that process but indeed as I have said before I think the cost reductions are a critical part of how one gets to premium reductions.

Okay. And just wanted to go in a different direction away from auto I am sure you will get lot more questions but on the commercial P&C side there was an increase in the number of large losses and I just want to dig a little bit further in what you are seeing because this isn’t the first quarter where you have had an increase in large losses and just can you give us little more color on that?

Okay. If you look at the large losses first of all I would say we are not seeing right now any trend I can look at let’s say the last six quarter as an example Q1 and Q4 of 2012 we have higher large losses than in average Q2 and Q3 were very weak in terms of large losses and this year Q1 was below average slightly and Q2 were slightly above average and on top of that the kind of losses we are seeing in the second quarter are coming from marine business or little bit of – business which is different than what we have experienced in the past in 2012.

So basically there is trend there is lot of fluctuation but the level we are seeing right now on a direct basis is still within expected normal variation in terms of large losses. But I tell you that Doug even though I think there is not necessarily a see up pattern we are looking at these losses one by one to see if there is anything in our risk selection process, our pricing process and so on that needs to be tighten trying to learn as much as we can out of that.

So we don’t take these lightly even though they are not a trend as far as I think it’s concerned.

And then I just wanted to go and I know I have asked this question before I mean it sounds like the way you describe the personal property changes there has been a lot of changes to the product over the last few years it sounds you are going to lean further into the product substantial changes in that product and you have had many discussion with the government around obviously the issues that are materialized for the industry have you have been approached at all or is there been any discussion with the government or the regulator about more tightly regulating this product?

I would say that our interaction with the government we often have been the ones approaching the government to let them know of the evolution we saw in the weather patterns and the implications this had on availability and potentially affordability more so than the governments coming to us and saying where we intend to do something there I think we want to make sure they understand sort of cost pressure that took place overtime. There has been in particular in Alberta ongoing dialog with the superintendent on the home insurance front as the understand that Alberta is the province that has been the most impacted on home insurance in the past few years with natural – I don’t think it is the intention of regulators to own that problem at this stage but there is certainly dialog there even though this product is not regulated.

Okay. So doesn’t seem like there is any further additional push at this point?

No I think the thing we will need to be very careful about is that if the reaction to the storms is too abrupt and you end up with availability issues in a number of markets well then you call to a certain extent for greater supervision and I trust my competitors to understand that but overall there is no sense that I have that there is an intention to regulate that product at this stage definitely an to cooperate and make sure awareness is pretty high across the country.

And then just Mark I just want to clarify you talk about the MCT being negatively impacted by 6 points from CAT yet I mean you were profitable in the quarter I am just trying to understand how the CAT was there a change in your reserve requirement as a results of the CATs?

Sure, okay. So I think on the slide we talked about 7 points of MCT due to elevated CAT losses what that consist of if you take the net cost of the CATs in the quarter net of tax which is 123 million and reduce the available capital by the 123 million that cost 6 points of MCT now we also have to setup those reserves and so then we – capital on the reserves that’s how you get the extra point so the six is just mathematically the cost of MCT cash out of the door the extra 1% is capital we have to hold on the reserves as how you get to the 7 you are correct we are earning other underwriting income and we are paying dividends and we are doing other normal things.

I think if you look at slide 13, in the deck where we do the sort of—record conciliation the intent here is just to show the unusual items in the quarter. So unusual items being the—losses the share repurchase and the improvement in the OC either normal stuff like the normal under-writing income and dividends and stuff.

We didn’t include that.

Okay, alright. Thank you very much.

Okay

Yeah, thank you very much. Good morning.

I got couple of questions. The first one is when you pre announced and I got on the call so you might—I may miss this.

When you renounced I think you had $0.92 in terms of whatever called carriage. And there are 79 in the quarter.

So what’s the difference in there?

79 is category only $0.92 is the category plus the other caps in the quarter.

But I think the caps in the quarter don’t they just sum up to the caps that you noted in the quarter where they all sum up just to the $0.92 or is there something different in tax rates. You may take this offline.

But—

Okay. I could obviously walk you through.

The 136 is the trade or cat level 34 statement so we talked about it earlier I guess 167 about 26.5 tax rate and there is 133 million shares in the quarter. I guess there are $0.92—was a $1.05 after tax which is $0.79 a share.

Get reinstatement probably

Okay, that’s appropriate then, okay. Great, okay.

Thanks. Now the second was have you quantified maybe a message did you quantify some of the actions you’re going to be taking in terms of tightening terms and price hikes with respect to personal property.

Are you able to quantify what the improvement would be to the combine ratio in this and over what time we might be able to get it?

10 points.

Okay. And then over what time we’d be able to get that?

Look, we’re – action will start in the coming weeks. Taking affect this fall.

As you know the renewal process you need 60 days release to put that in the machine and sent the renewals out. So that will start when we think about our action plan I mean there is two face there is an immediate phase that will start this fall.

And there is a broader product and offer phase sort of that will start in Q1, 2014. These are meant to take effect in the coming 12 to 24 months.

Okay. And this would be all year cap basis?—10 points?

Well. No, not the cap I think that the—that’s the…

We’ll assume we had a normal level cash. But I guess there we don’t know what will be the normal level caps.

Yeah. I think Tom, if you look at the past three years.

The non-GAAP combine ratio has improved dramatically. I would say 15 points in fact very clear.

So what for after now and what we’ve been after in the past 12 to 18 months is to tame the consequences of cap the levels and the volatility of that this creates. So that our ability to run the business at 95 is not hampered by caps over three years.

Basically and so we are taking an action on—number of actions on number of fronts to achieve that. Difference between this time and previous action plan is very going coast-to-coast with these actions.

Our approach has been driven depending on the province in the past focused on Alberta and so. Now we’re saying who knows will happen next, who knows flood will going to happen next.

We’re going coast-to-coast with deep changes in our offered as well as pricing and starting this fall.

I guess I could paraphrase that that if you like of this events being sporadic and I don’t know one in the 10 or 10 in the 1000 how we want to look them. Do we actually you’re going to limit some of the variants.

But if you have what would be a normal level of cash that’s really harder to find than you would probably find your accident year ex cap to last ratio. And my statement saying that.

If we say this year for all intents the peak year because things came out at us everywhere at the same time. Once should not expect to see that every year.

Thing we’re saying is that we’re trying to protect our offer in every region. And every business to mitigate the impact of those sort of elements.

Now when that doesn’t happen or when you have a normal level cap. In theory result should be better because you’re protecting yourself against that we’ll materialize once in a while.

And given that this is all just personal property I guess given that it’s 25% of the business we probably see at 0.2 to 0.3 improvement over the company overall.

I think that’s a fair statement. Then I think you need to ask yourself the right thing caps level going forward then in the past given what we’ve seen this summer.

I think it’s early for us to make a call there. But it is not early for us to protect our business.

In that regards.

No I appreciate that and I think the proactive with respect to sea firming in the 20% of the industry. Can you elaborate that is this certain part suggesting in.

And how are you positioned in those segments. And you did taking some action in terms of commercial and product offering.

If you can elaborate little bit on that and might him your radio your accidents that show the caps through the?

I will take this one on that. Thank you very much Charles, so, just to rephrase in.

we expect the market to firm on what we see as the 25% of the market which is the worst part of the market. Under performing and that’s coming from and discussion and everything that those glasses are under performing all over the market.

If you talk specifically about what we did intact we did in the second quarter I would say mid teen by mid teen digit those classes of business that’s 25%. So we did increase the new business.

But what we saw at the same time on this was a drop in our closing ration the closing ratio is all often when we get—successful. So basically like the mm25% of the book translated in to 3% and 3.5% new business and we saw the closing ratio drop by 2%.

So that tells us that currently there are at that point that was and is still a competitive market that was still plenty fall of capacity. So we’re not seeking in turn immediately we’re going to be starting and what we’re starting in August is to do similar situation on our renewal book of business.

So we’re starting to push significant increase or important increase on the same side classes of business we’ll have a better view with what’s happening at the end of the third quarter. We’ll have a better view on how successful we were with—on the retention ratio.

But at the same time what was saw was the sphere or the event in the last few weeks either in Callaway or Toronto these are additional I would say pressure point on the industry to a little bit sober up the level of competition any question the underwriting in the situations in those lines of business. And that builds against the confidence that we will see in the next probably quarter the market start to turn.

But it’s difficult to predict exactly when.

So bottom line is that we’re pushing on a quarter of the portfolio double digit rate increases we did at new business, we’ll do that at renewal. We’re getting a couple of points of rate increases already in our portfolio.

So what’s happening in the market would these changes should help that situation. But I think the point is making is that we’ve see some compression in our changing ratio by taking those four moves on the quarter.

So there is change we expect the environment will bring additional change and we’re pretty focused at the moment.

Okay. Thanks for that color and then one final one for mark.

I am trying to look at how much the – would go up quarter-over-quarter on a everything was normal you didn’t have AOCI noise quarter-over-quarter. Obviously that quarter will never happen.

But what would be the normal run rate of NCPI soon will have to go up a little bit.

Yeah, I would say if there was no noise and it was a typical quarter maybe one or two point up something like that.

One or two points up quarter-over-quarter.

But obviously there will be seasonality. We payout more cash in Q1 so there is kind of more of a drop from Q1 to Q2.

Yeah. Charles Brindamour; It varies from quarter-to-quarter but if you look at it over the course of the year it might be six points or something like that.

That’s great. Thank you.

Good morning.

Good morning, Mario.

A quick question. Charles you referred to not really seeing any churns in personal in current year claims where it shows about core claims show personal but over the last four quarters we have seen year-over-year increase in that core claims ratio.

So what I am trying to understand here is with four consecutive quarters under your belt of an increase what gives you confidence in saying that there isn’t some sort of trend emerging here?

When you look at–so we are talking personal item.

Right.

When you look at first six months of ‘13 versus first six months of 2012 you are seeing very mild frequency increase little more than in point. You are seeing miles rate increase of a couple of points which is not too far from the risk or the value of the insured car pool.

I think the other thing that one needs to take into account is the areas where we have seen movements were pricing point so I think what we are seeing is we are not seeing anything new or anything that was not anticipating emerging in the market at the moment.

Okay, so if this were to process, if the core claims were to increase year-over-year for another say 12 months what would that then indicate there, pricing increases will be necessary or you need to do more on the cost front? Because presumably it can’t go on for too much longer before it becomes a problem.

Fair enough. I think that’s exactly what this will mean that one would need to reflect that trend in pricing so as to ensure that once you know it’s a trend that you are actually pricing for it.

But I guess you are saying it has not [inaudible].

Well I think Mario if we look at the areas that we have talked about in the past six to nine months, Alberto was one of the areas where we said you know what we are seeing things that are different than what we anticipated as a result of number of court decisions and so on the DI front we did reserve adjustment in Q4 and we have taken rate and we will take rate the second time as a result so you know there are number of areas where rates actions are being taken, number of areas where cost actions are being taken to react to the things that we have observed in the past 12 months.

Another question then the mediation places are down significantly and obviously arbitration is up. Have you learned anything from the mediation or early arbitration that tells you that informs your call on reserve development?

Have you learned anything new?

Not learnt anything new. I would say it sort of defies or removes some uncertainty the fact that the backlog is done but I think it’s largely unfolding as we were expecting.

Yeah that’s important and then finally for Mark on buybacks. The MCT below 200 you are giving us some comfort here a little between 195 and 200.

What I am not sure about is how is the company preferred to stock in the past when the MCT below 200%? Will that be an unusual thing?

I would say it wouldn’t be unusual if we buy it below 200. I think what we intend to do is manage the MCT level between 195 and 200 range and share buyback is sort of one of the variables in that determination.

So does that necessarily mean that buyback is after sort of closed for a while because the buyback for this quarter would have taken, I think in your presentation I think you say it’s five points?

Correct.

Does that necessarily and if you are adding as you described to Tom in answering his question you are adding say two a quarter, does that necessarily mean the buyback have to be a fair bit smaller or not at all in the near term?

No, I think there is a lot of variables and a lot of levels including what happens to OCI, what happens to underwriting you know some other levels there. You know one of the levels is what we do with the buyback.

Thank you.

Thanks, just two quick questions. The first one for investment income, I saw that increase sequentially by about 6% while the market base yield declined by about 20 basis points.

Could you explain the increase in the investment income?

The market base yield was up. If you look, I think the best way to look at that is quarter-over-quarter so it was 3.4 last year and 3.8 last year and that’s a bit of an odd calculation because it’s our what we the income we are divided by the market value of the assets so the reason for that increase that went from 3.4 to 3.8 is that the market value of the assets went down due to the increase in interest rates and the decline in market value of the share portfolio.

I think the best way to look at this is I mean in my comments I gave the advice that we expect investment income to remain relatively the same for the second half of the year as the first half we are heading because you know as the market values go up and down it’s going to impact the market base deal but not really so much impact investment income.

Okay, thanks. And just one last one.

In personal auto for the last two quarters we have seen some pretty large prior claims development and if you could explain what’s driving that?

I will take this Mark. You know we have seen about 5.5% favorable development in a relationship with premium anyways and the second quarter little more than that year-to-date and we have seen favorable development in automobile insurance across many of the jurisdictions in which we operate be my first sort of perspective.

We have seen some of it in Ontario automobile. I think that I have mentioned before that in Ontario automobile we are seeing probably more development in the field favorable development in the field than what we let flow through because we want to be conservative here it’s still early in the game there are still uncertainty and so we are seeing that across jurisdiction, purely we are seeing some in Ontario but I do believe that we will remain conservative despite the fact that there is favorable development in that province.

Okay, thank you. That’s it for me.

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