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Operator: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q4 2025 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on February 11, 2026. And now I would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead.
Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our fourth quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to Slide 2 for a disclaimer regarding the use of forward-looking statements, which form part of this morning's remarks and Slide 3 for a note on the use of non-GAAP financial measures and other terms used in this presentation. To discuss our results today, I have with me our CEO, Charles Brindamour; our CFO, Ken Anderson; and Patrick Barbeau, our Chief Operating Officer. We will begin with prepared remarks followed by Q&A. And with that, I will turn the call over to Charles.
Charles Brindamour: Good morning and thank you for joining us. Last night, we announced another very strong quarter. Net operating income per share for the quarter was up 12% to $5.50 and for the full year was up 33% to $19.21. This brings our compounded annual net operating income per share growth to 18% over the last 3 years and 12% over the past decade, exceeding our 10% growth objective. This track record is driven by 3 levers: solid organic growth, margin expansion and accretive capital deployment. And as I look ahead, given our opportunity set has expanded by a factor of 10 in the last decade, I see plenty of runway for each of these levers. The strength of these results is driven by a combined ratio for Q4 of 85.9%, a 0.6-point improvement from last year and the full year combined ratio of 88.2% improved by 4 points. This underwriting performance is a function of our superior risk selection machine and our unique market positions where we have a massive scale advantage in Canada and a Commercial and Specialty lines portfolio that is 70% in the SME and mid-market space. And our capital generation is impressive. Yet despite a very strong capital base, the operating ROE reached 19.5%, another proof point that our ROE has structurally shifted in the upper teens. It is strong in both absolute and relative terms. Indeed, at the end of the third quarter of 2025, we estimate that our ROE outperformance reached 750 basis points, well above our 500-basis points objective. And when I look at our growth profile, I'm encouraged to see that we were outperforming the industry in Q3 on top line growth in Personal lines in Canada and in Commercial lines across North America. As I look ahead to 2026, I expect the platform overall to continue to deliver top line industry outperformance. Let me provide some color on the results and outlook by line of business, starting with Canada. In personal auto, premiums grew 9% in the quarter, including a 2% increase in units. Profitability for the industry remains challenged with the combined ratio above 100% for the first 9 months ended September. As a result, we expect hard market conditions to persist. Our underlying loss ratio improved 1.3 points year-over-year despite severe winter conditions. The overall combined ratio of 94.2% is very strong results as Q4 is a higher seasonality quarter. With our full year combined at 93.3%, we met our sub-95 guidance, and we remain well positioned to continue delivering on that objective. Moving to personal property. Premium growth was 6% in the quarter. Growth was supported by a 2% increase in units but was offset by a nearly 3-point drag from a one-time item in our affinity and travel business. We do expect a similar one-time but unrelated impact on our Q1 growth. Adjusting for this, growth is running in the upper single-digit range, a level we expect to return to in Q2. At 76.4%, the combined ratio is strong, and we're positioned to deliver a sub-95% combined ratio even with severe weather. And our 10-year average combined ratio is still solid sub-90%. Overall, in Personal lines, which is nearly half of our business, we expect to see industry growth in the high single-digit to low double-digit range over the next 12 months, driven by continued industry profitability challenges. And we're well placed to continue to gain market share in this environment while also outperforming on combined ratio. In Commercial lines in Canada, premium growth was 1% in the quarter. Although top line growth is being tempered by elevated competition in large accounts and an average reduction in account size as a result, our growth initiatives in the SME and mid-market space continue to gain traction, and we're growing our customer base in this environment. In fact, in Commercial P&C, competed quotes are up 24% and new business is up 8% year-over-year. We expect industry premium growth in the low to mid-single-digit range over the next 12 months. Profitability was really excellent with a combined ratio of 77.1% in the quarter. Our pricing and risk selection advantage, which includes our investments in data and AI, allow us to grow while maintaining margins. We remain well positioned to deliver a low 90s or better combined ratio going forward. Moving now to our UK&I business. Premiums in the quarter were 2% lower year-over-year, but that's a 3-point improvement from the past 2 quarters as expected. We see top-line growth continue to improve in '26 as we unite the Commercial lines business under the Intact brand and as the remediation of the direct line book tapers off. We expect industry premium growth in the low to mid-single-digit range over the next 12 months. The combined ratio in the U.K. was 93.5% in the quarter. This business is on track to evolve towards 90% over the next 12 months. In the U.S., premiums were up 5% year-over-year, driven by our growth initiatives as new business increased 11%. Our diversified product range, coupled with progress in expanding and deepening our broker relationships is really paying off. While we see industry premium growth for U.S. Specialty lines in the mid-single digit over the next 12 months, our growth initiatives position us to outperform. The combined ratio of 82.8% in the quarter in the U.S. improved by more than 3 points year-over-year, reflecting a very strong underwriting discipline. Our strategy there is to grow faster in our most profitable lines and customer profile. In 2025, our business lines with a sub-90 combined ratio grew 7 points faster than those with a combined ratio above 90%. This focus on profitable growth helped us deliver the 10th quarter in a row with a sub-90 combined ratio in the U.S. Overall, across the platform, our team continues to execute on our strategic priorities. Let me highlight a few achievements in Q4. First, we aim to be a global leader in leveraging data and AI. And up to now, our teams have deployed AI models generating north of $200 million of recurring benefits with a primary focus on pricing and risk selection. At this pace, we're on track to exceed our ambition of at least $0.5 billion by 2030. Our AI investments continue to be concentrated where they move the needle the most. In '26, for example, we're investing in 4 distinct areas: advancing our risk selection advantage as we have in the last decade, improving customer journeys to drive organic growth, significantly accelerating software development and improving operational efficiency. In software engineering, for instance, we've increased our output by close to 20% per dollar of investment in less than 24 months. Within the UK&I, we seek to deliver a leading broker and customer experience as well as optimize underwriting and claims to drive outperformance. In the U.K., we launched 3 new products in the quarter. In addition, Intact Insurance was voted by brokers as the #1 insurer in the U.K. for commercial claims. This is a recognition of the improvements we've made in customer and broker service, which coupled with expanding our distribution footprint will really help us achieve our ambition of doubling the size of the business by 2030. In Global Specialty lines, our strategy focuses on having a profitable and growing mix of verticals. During the quarter, we launched a number of products, including a new marine cargo quota share offering in the London market. This allows us, for instance, to offer a comprehensive solution in cargo, thereby making it easier for brokers and customers to do business with us. This is an example of the types of initiatives that help support our goal of reaching $10 billion in direct written premium by 2030 while sustaining a sub-90s combined ratio. The strength of our '25 results, coupled with our confidence in delivering our financial objectives, means that we're pleased to increase dividends by 11% to $1.47 per quarter, our 21st annual dividend increase. Our quarterly and full year results demonstrate the strength and resilience of our platform. In 2025, we generated mid-single-digit top line growth, margin improvement, double-digit earnings growth and a 20% ROE. Sitting here today, we're very confident in our ability to sustain annual ROE in the upper teens and deliver at least 500 basis points of ROE outperformance every year. And there is no doubt we'll continue to deliver double-digit net operating income per share growth on an annual basis in the next decade. Before concluding, I want to thank our employees for their exceptional dedication and execution this past year. Your disciplined commitment and drive to do better every day has positioned us to continue to deliver in the years ahead. With that, I'll turn the call over to our CFO, Ken Anderson.
Kenneth Anderson: Thanks, Charles, and good morning, everyone. We've ended 2025 on a very strong note. Fourth quarter performance was excellent with a combined ratio of 85.9%, driving a 12% increase in net operating income per share to $5.50. Operating ROE was 19.5% over the past 12 months, which fueled a 16% increase in book value per share to $107.35. Let me add some color to our fourth quarter results. The underlying current accident year loss ratio improved by 0.5-point year-over-year to 55.9% in the fourth quarter. This measure was particularly strong across North America where the ratio was 1.4 points better in Canada and 1.7 points better in the U.S. In the UK&I, improvements in the direct line portfolio were tempered by higher large losses in Specialty lines, which can be volatile quarter-to-quarter. Fourth quarter favorable prior year development was 5.5% and aligned with our expectation of hovering around the upper end of our 2% to 4% guidance in the near term. Our long track record of favorable PYD reflects the ongoing prudent approach we take in reserving the current accident year, which continued throughout 2025. And this is why we assess overall underlying performance by focusing on the total of the current accident year loss ratio and the prior year development ratio. On this measure for the full year across IFC, we delivered close to 1 point improvement. And in Commercial and Specialty lines globally, we have seen year-over-year improvement for the past 12 quarters. This illustrates the margin expansion the platform is producing. Catastrophe losses in the quarter totaled $69 million and $844 million for the full year. Looking ahead to 2026, reflecting longer-term trends, the revision to our catastrophe event threshold as well as growth in our premium base, we are maintaining our overall annual catastrophe loss expectations at $1.2 billion for the year ahead, with 75% allocated to Canada, of which 70% is in Personal lines. Mentioning catastrophes, I'll provide an update on reinsurance. The January 1 renewals were favorable. We maintained our cat retentions at similar levels to 2025 while improving our aggregate coverage for multiple loss events. Our approach to reinsurance remains unchanged. We use it to protect our balance sheet from tail risk. Moving to expenses. The consolidated expense ratio was 34.4% for the quarter, a 0.8-point increase versus last year. This was driven by higher variable broker commissions and higher incentive compensation, reflecting our profitability in North America. This also contributed to the full year expense ratio of 34%, which is aligned with our annual guidance of 33% to 34%. Operating net investment income increased 4% to $415 million in the quarter, reflecting higher assets and special distributions. For 2026, we expect investment income to be more than $1.6 billion as growth in invested assets should offset reinvestment yields, being slightly below our current book yield. Distribution income decreased 5% in the quarter. BrokerLink remained very active across 2025, completing over 20 transactions and acquiring $570 million in premiums to surpass the $5 billion mark. Overall distribution income growth was tempered by the favorable weather throughout 2025, which meant financial results at our countercyclical on-site restoration operation were lower compared to 2024. Our distribution income has grown at a compounded annual growth rate in the mid-teens over the last 5 and 10 years. And while quarterly results may vary, we expect at least 10% annual growth in distribution in 2026 and beyond. In non-operating results, we reported nonoperating losses of $55 million for the quarter and $139 million for the year, a significant improvement compared to the prior period. In 2026, we expect acquisition, integration and restructuring costs to be lower than 2025 as U.K. rebranding as well as RSA and DLG integration activities will be largely behind us. Moving to our balance sheet. Our financial position has never been stronger. In 2025, total capital margin grew by $800 million to $3.7 billion, while our adjusted debt to total capital ratio improved by almost 3 points to 16.5%. All this while delivering close to a 20% operating ROE. Our capital management framework is robust, and the balance sheet is positioned to deal with any external shocks while also providing significant capacity to support both organic and inorganic growth opportunities, which remain our priority. Within our framework, we will be renewing our normal course issuer bid on February 17, allowing us to repurchase up to 3% of shares outstanding. Capital generation is very strong, and we will utilize our share buyback program opportunistically when we see our shares as significantly undervalued as we do currently. In the last 6 months, we deployed $200 million for share buybacks, and we will remain active and prepared to do more. But with the attractive opportunity set we see on the M&A front in the near term, both in manufacturing and distribution, we are content to maintain dry powder, especially given our improving ROE outperformance trajectory. In conclusion, I want to thank our team for the rigorous execution in 2025. Your drive for outperformance has delivered results which showcase our capacity to drive earnings growth. It has also shifted our operating ROE into the upper teens. We are proud to be a leader among our global peer group, having amongst the highest ROE and the lowest ROE volatility. It is a testament to the platform we have built and the successful execution of our profitable growth strategy. This positions the organization to continue to deliver on our financial objectives to compound net operating income per share growth by 10% annually over time and exceed industry ROE by at least 500 basis points every year. With that, I'll turn it back to Geoff.
Geoff Kwan: Thank you, Ken. [Operator Instructions] So Sylvie, we're ready to take questions now.
Operator: [Operator Instructions] And the first question comes from the line of John Aiken at Jefferies.
John Aiken: Charles, recently, there's been a lot of speculation about AI and disruption in the industry. Now you guys have been very vocal about the benefits that you're receiving in terms of deploying AI in your systems. But can you discuss the impact or maybe the lack of impact that AI may have in terms of the manufacturers of insurers, if not in Canada than globally?
Charles Brindamour: Did you say the manufacturing of insurers?
John Aiken: Manufacturing of insurance, AI disrupting the current players.
Charles Brindamour: Yes. I think, indeed, John, we've been very focused on AI for about a decade. And we've made massive investments in the risk selection side of things. And as I mentioned in my remarks, we're doubling down on that, but we're also deploying AI in the digital funnel in software engineering as well as in efficiency. I do think that large language models will certainly have an impact on our ability to capture traffic and shopping in the digital channel. This is an area that we're very focused on at this stage. In terms of manufacturing the product per se, keep in mind that the purpose of the organization is to get people back on track. And we've created probably 1/3 of our ROE advantage coming out of getting people back on track. And I see -- this is happening in the physical world. I see a little change there. But I would say when it comes to predicting risk, AI is a fair bit of upside. And I think the nature of advice will evolve over time. And I think we've been focused on disruption in distribution for over a decade. This is one more source of potential change that we need to keep an eye on, and we're very focused on that. We want to make sure as a firm that through LLMs, people find our leading brands first, in particular in retail insurance, and that we win in that channel as well as we win in other channels.
Operator: Question is from Stephen Boland at Raymond James.
Stephen Boland: I guess I'll ask this question since I'm at the front of the queue. But you mentioned now for a couple of quarters about obviously competition in large account. I'm just -- as the sector kind of is under pressure, how -- is there a buffer of that softness? Does it move into the middle or the SME space that you mostly play in? And if yes or no, like why or why not, I guess, is the question?
Charles Brindamour: Yes. Stephen, thanks for your question. I think if you look at the earnings base of Intact, half of it is Personal lines, and we're in a hard pricing environment, and you see us outperform from both top and bottom-line point of view. When you then look at the rest of the platform, which is Commercial lines and Specialty lines, about 70% of the portfolio is in the SME and mid-market space. So in large account, there is ongoing pressure. And then as you move from the smallest account to the largest account in the SME and mid-market space, competition is uneven as well. This is not a new phenomenon. This is something we've seen over the past decades. And the nature of that business tends to be far more service-oriented, speed-oriented and ease of doing business oriented and as a result, tends to be stickier. We've got 2 advantages. First, we're a big leader in that space in Canada. Second, in our Specialty lines operation, in particular, in North America, we can pick and choose where we decide to grow. Some segments are more competitive than other segments. And that's another, I think, big advantage. So could it come down. I mean we're seeing that the competition in the SME and mid-market space is highly uneven, but it's nowhere near what we see in the large accounts. And if I judge by our experience in the past 20 years, this is far less sensitive, and I'm not losing much sleep over that, Stephen. I think one of the things that is important when you look, say, at the Canadian growth in Commercial lines, which was about 1%, you have 2 to 3 points of change in mix. That is the average size of account, it's not rates, it's mix. It's the average size of account is down a bit. That is a function of the fact that from small to very large, competition increases as you go up the size curve. We have tools to figure out where we grow. This changes mix is not just a change in size. It's also a change in profitability profile. And while it puts pressure on the top line, we think this is very good for our bottom line and margins. And frankly, when you look at our performance, you get a sense that our risk selection strategy is working really well.
Stephen Boland: Okay. That's great. I appreciate that. And maybe just a second question on personal auto. We all track the filings that happen here in Ontario. The pace of rate increases has slowed. So -- and your guidance remains like it's going to be a firm to hard market for 2026. So I'm just curious about the confidence that it continues to be firm, and there were a couple of insurers that got rate decreases approved. So I'm just wondering if you could talk about that, please.
Charles Brindamour: Yes. Stephen, Canada is a big country. And I understand when we're based in Toronto, we look at Ontario, and I think it's important. I'll give -- Patrick, maybe Patrick can give his perspective on where the automobile market is going in aggregate. And go ahead, Patrick.
Patrick Barbeau: Yes. Well, overall, when we look at the first 3 quarters of 2025, which is information we have about the industry, it grew by high single digits overall Canada-wide. And the combined ratio if I look both at 2024 for the industry was above 100% and was still above 100% in the first quarter -- first 3 quarters of 2025. When we look at specific regions, there might be fluctuations 1 quarter to -- especially on -- from a rate approval perspective. But overall, there's still pressure in the system. We've talked about Alberta, in particular, where we see pressure in the Liability lines. There's a reform that will come on Jan 1. But until then, there's pressure on the Alberta market. So overall, the combination of the industry not being profitable overall, inflation stabilizing in the 5 or mid-single-digit type of range overall for the country is no means that the industry overall will need to continue to take rates to be profitable.
Charles Brindamour: Yes. I think our outlook in personal automobile, I mean, there's not -- it's simple math. Combined ratio above 100%, inflation 5, if you want to bring back the industry in a reasonable zone, I mean the industry needs to grow in the upper single-digit sort of range. And our view is that this is true for the next 12 months. Now you have reforms coming in 2027. And in Alberta, in particular, I think that will be really important because that's a market that is that is dragging the industry's performance more so than Ontario at the moment. And I would very much welcome in '27 an industry performance that would be better, and we'll see what it does to the environment. But for the next 12 months, I think we're in a hard market environment in auto.
Operator: Next question will be from Paul Holden at CIBC.
Paul Holden: Just want to ask on the expense ratio. We don't -- and I'm referring to the general expense ratio. We don't talk about that ratio too much. And I'm just -- I'm asking for -- about it because it's been roughly around the same level for 3 years now despite strong premium growth. So I might expect from particularly an Intact with your scale advantages that, that is a ratio that might improve over time. So maybe 2 parts to the question. One is like why is it not improving? Is it just simply investments in technology or otherwise? And should we expect it to improve at some point in time as you continue to grow top line?
Kenneth Anderson: Yes. Thanks, Paul. Maybe just a few comments near term, and then we can look a bit more longer term. We've guided towards 33 to 34 zone at the overall IFC level for -- I guess, that's the combination of Gen Ex and commission. Overall, for Q4, I would say, and the full year, a bit higher than last year. But again, driven by variable commission and variable comp, which really is reflecting the improved profitability. So you are seeing as the profitability profile has improved over time, the Gen Ex is picking up a variable comp component in that. It's equally true, I would say, on the commission ratio as well. I think it is fair to say, as you look over time, particularly in Canada, I would say that as we've scaled up, you will see an improvement in the Gen Ex ratio. I think in the U.S., it's a bit different because you have different lines of business depending on whether you're dealing with MGAs or dealing with regular brokers, the level of internal costs that you will have versus external will also be a factor. So I think the shift in the lines of business within specialty is certainly a driver in the U.S., I would say. And in the U.K., we know that we're investing in technology. There's a need to renew the technology stack there. So that's going to show up in that Gen Ex ratio in the U.K.
Charles Brindamour: So Paul, I guess you're saying you're closing '25 with 14.6 Gen Ex, you closed '24 at 14.6 Gen Ex. You closed '23 at 14.6, '22 at 14.2%, what are you guys doing? And I think it's a fair statement. And frankly, we're challenging ourselves to do that. But I do think, Paul, that the strong growth in the direct channel is putting upward pressure on Gen Ex more so than anything else. And as Ken is saying, the strong -- the lines that are growing the fastest in Specialty and Commercial lines would put upward pressure as well on Gen Ex. That's why I'm very focused myself on the combined ratio and the combination of both. That being said, we've given ourselves internally a number of pretty steep performance improvement targets in terms of expenses and productivity in the next 3 years. And I'm certainly hoping that this ratio is coming down.
Paul Holden: Understand. That's helpful. Part of the reason I asked the question is just kind of should we really be looking at the K-ratio, as you call it, ex-expense ratio? Because it seems like there's a little bit of puts and takes there, and I think part of your answer helps answer that like mix, right? So Specialty lines might have a lower loss ratio, but maybe a higher expense ratio. And so maybe I should be paying more attention to the total combined, either way lines is getting better.
Charles Brindamour: Yes. No, exactly. And on the theme of investments in technology and all of that, I mean, the reality, Paul, is we've been investing massively in technology and AI over the last decade. And frankly, we're making trade-offs. I mean if you're investing more in technology, you have to manage your investment envelope. And I don't expect that this will put meaningful pressure prospectively and as Ken is saying, we're working really hard on the U.K. combined ratio following the focus -- following the fact that we've refocused that business on Commercial lines completely where we think we can win.
Paul Holden: Okay. Okay. And then my second question, Charles, you talked about a structurally higher ROE a number of times in your prepared remarks. I guess my follow-on question there, just so I completely understand that. I get that mix has changed over time and mix has changed favorably. Is there also an argument that your, let's call it, legacy businesses or traditional businesses, you've also been able to expand your ROE advantage. Is that second point fair also?
Charles Brindamour: Absolutely, Paul. I think -- I mean you look at the Canadian outperformance at Q3, I've never seen that level of outperformance. It's 2 points from a top line point of view, but 8 points of combined ratio. And frankly, in my mind, it is a function of the massive investments we've made in bringing science, the latest science in the field when it comes to risk prediction and the fact that the claims muscle is making a big difference. And so yes, the mix itself with GSL, Global Specialty lines representing a much bigger portion of the pie, and that's running sub-90 solid, that is a higher ROE business to start with. But I think the investments we've made in risk selection and in claims are also helping the trajectory of our, what you call legacy business and what I would call outstanding businesses that we want to grow as much as we can.
Operator: Next question will be from Tom MacKinnon at BMO Capital.
Tom MacKinnon: My question is around -- you used to give an industry ROE outlook. It was around 10% for the last couple of quarters. I assume that, that is still your outlook for the industry ROE.
Charles Brindamour: Go ahead, Ken.
Kenneth Anderson: Yes, Tom, you're correct. In the MD&A, we used to give a perspective on the industry ROE. We streamlined a bit our disclosure around that, but there's no real change in our expectation of it being around 10%. And I would just call out that we refined -- it's refined disclosure, and we feel that speculating on where the industry ROE is going forward is a bit challenging. As you know, there can be nonoperating items that goes into the ROE, very difficult to project where they will end up. But I go back to at September after 3 quarters outperformance, 750 basis points. So the trajectory and we talk about expanding the ROE outperformance beyond the 10-year track record of 650 basis points, that's certainly the zone that we're in after 9 months, and we would expect to be in as we close out the year.
Tom MacKinnon: Yes. Just following up on that. I noticed that if you kind of look at the outlook, premium growth outlook since this time last year, you've lowered it for essentially every line of business. But if I look at the industry ROE outlook, you've increased it from high single digits to being around 10, are you suggesting then that despite the fact that we're getting pressure in terms of industry premium growth that the industry still should be able to maintain an ROE around 10, which is, in fact, higher than what you would have suggested before you started revising down these premium growth outlooks. Just curious as to what your thinking is around that.
Kenneth Anderson: Yes. Well, I would say, Tom, when it comes to the industry ROE, that's an all-in measure. It picks up premium, combined ratio and also investment income, but also investment gains and losses. And again, those can be lumpy. We look at where the industry unrealized position is and assess how much of that will come through the P&L over time to form our view on where the industry ROE will be. But our view is focused on our own margins, and we talked about our own ability to expand margins and also to grow and outperform the industry on growth.
Charles Brindamour: Yes. And I think, Tom, let's just not forget that in Personal lines, you have an industry that is running above 100%, we expect that to come down. And so it's a blend of things. But I think to start putting point estimate or a weighted average of industry's performance where we operate, we think is we want to streamline our guidance there.
Tom MacKinnon: Yes. Okay. And you've talked about wanting to and exceed the industry ROE by at least 500 basis points for decades now. And you've accomplished that. And now you've moved into this mid-teens to higher. You've moved up higher. Why not suggest that this number would not be 500, but might be 600 or something like that or broaden out this outlook? Thoughts there?
Charles Brindamour: Yes. I think it's a very valid point, Tom, and one we probably should debate one more time inside. On one hand, you're right. I mean, the track record and the machine is spitting out more than 500 basis points in the long run. I mean that's just a fact. This is an objective that says every year, you need to be 50% more profitable than the industry, if you assume the industry is in 9% to 10% range. And we're in the U.S. for less than a decade. We're in the U.K. and Europe for less than 5 years. We think we're starting to really understand what's going on in those places, but we want to outperform there as well, which we now do. I think we just want to make sure that we're -- we have objectives that are really stretched compared to our peers. But at the same time, we want to master those markets a bit more. But I won't hide the fact, Tom, that it's a live debate whether that 500-basis point ROE outperformance objective is -- should be more stretched.
Operator: Next question will be from Jaeme Gloyn at National Bank Capital Markets.
Jaeme Gloyn: I wanted to go back to the Investor Day where you talked about 8% organic growth, about 6 points from premium growth, about 2 points from operating margin, but there's flexibility to optimize that. And so as you're thinking about the current market and maybe this ongoing softening in some areas, how do you think about optimizing that roughly 8% organic growth you would expect to achieve through 2030?
Charles Brindamour: Ken, do you want to provide a perspective?
Kenneth Anderson: Yes. Well, I guess if you look at this year, growth is in the mid-single-digit range. The margin expansion has been beyond, I would say, the 2 points that we've signaled. So I think heading into 2026, we certainly see growth in the zone of what we've signaled as a longer-term objective. Clearly, on margin expansion with the initiatives we're doing in terms of deploying our pricing and risk selection capabilities, improving our claims operation, the ability to deliver 2-plus points of margin expansion is clearly there. In fact, I think that's where we have opportunity to leverage that pricing sophistication to reinvest in the top line growth. So that's why, Jaeme, when you look at how we described it at Investor Day, we did combine the 6 of growth and 2 of margin into an overall view of 8 points. And I think that certainly the machine is set up to deliver that 8 points. Then with distribution roll-up that we're doing in BrokerLink and we're now looking at in the MGA space in North America, that's giving at least another point. And as we've said, in a in a worst-case scenario, the buybacks would deliver a further point. Again, to be very clear, the M&A outlook is quite strong, and that's what pushes us beyond that 10% zone overall. But all in, I think the 8 points of organic is organic plus margin delivering that 8 points is well set up.
Charles Brindamour: Yes. I think that's exactly right. I mean it's not -- historically, if you go back a decade, it was more 4, 4, 4 when you break down the 12% track record. I think our sandbox is 10x bigger today than it was at the start of the last decade. That's why I think from an organic growth point of view, the odds of beating what we've done historically, I think, are pretty good. But we're really finding out that the investments we've made in risk selection are paying off a bit more than what we thought even a year ago. And so we'll ride on all these levers. And as Ken says, I mean, the capital deployment lever in what I think is a very constructive M&A environment bodes well to outperform the 10 points of earnings growth in the next decade.
Jaeme Gloyn: Great. And then as you -- as you talk about the higher -- structurally higher ROE in the upper teens, the balance sheet today currently is underlevered as I can remember. How much of that upper teens ROE is dependent on that balance sheet deployment? Can you achieve that upper teens base case with a leverage ratio of sub 17%?
Charles Brindamour: Well, we are there now. But our target is 20% debt to total cap, and we'll get there as soon and as fast as we can when we find a highly accretive transaction. And we'll buy back shares in the meantime.
Kenneth Anderson: Exactly. 19.5% operating ROE is with the balance sheet that's -- that's, as you said, underoptimized, if you want, from a leverage point of view. So -- and that's the lens we look at when we say that we're comfortable and happy to hold dry powder on the M&A front to be able to continue to outperform north of -- well north of the 500 basis points and maintain the dry powder for -- on the M&A side. That's the equation, if you like, that we look at when we assess where the balance sheet is positioned.
Charles Brindamour: Jaeme, my pedestrian perspective on this is that when you look at '25, we printed an OROE of 20% -- 19.5% and we printed an adjusted ROE of 21%. I think the cats came in a bit below guidance. And then our balance sheet is stronger than our target makeup of the capital base. And those 2 things largely offset each other is my take. And therefore, the guidance of upper teens, we don't sweat when we put that guidance out.
Operator: Next question will be from Doug Young at Desjardins.
Doug Young: Ken, Charles, you both have talked just about a constructive M&A environment right now. Ken, I think you talked about manufacturing and on the distribution side. I'm hoping you can unpack what you're seeing there. Is it more on the manufacturing, more on the distribution side? And maybe what has been the impediment to more M&A right now, specifically in the -- maybe in the Canadian market?
Charles Brindamour: I think the distribution environment is active, very active. BrokerLink has been very active. Some of the broker -- the consolidators we support in consolidation are also very active. I would say the competitive pressure, the demand for assets and distribution is probably down compared to what it was a year ago. And therefore, this is a place where we continue to deploy capital meaningfully. On the manufacturing front, it is a constructive environment in my mind, globally. You've seen a number of transactions. I do think that there will be near-term opportunities here, true in the U.S., true on the other side of the pond. And I think in Canada, as well, maybe not as near term as I can see in some of the other jurisdictions, but I think that this is a highly fragmented marketplace. Strategies are changing with the owners of some of these assets, and you'll see more consolidation in Canada. Now we're patient and strategic as a buyer. And therefore, we find the opportunities at the best moments. And the position we're in today, Doug, which we've never really been in before is the fact that we can fish in the U.S., we can fish in the U.K. and Europe as well as Canada. Why? Because outperformance exists. pretty much everywhere at this stage. And that's why I'm thrilled about the M&A prospects, and it's an environment that is constructive. No doubt about that. People are open to talk.
Doug Young: Okay. And so just on the European side, I mean, the UK&I division, I mean, if you look at it on a current accident year basis, it's -- and there's been some challenges there. I guess the question I often get from people is you're comfortable doing, like I think Global Specialty MGAs, Canada, obviously, but would you do something more specifically in the U.K. on the M&A side near term?
Charles Brindamour: I think the performance in U.K. and Europe is not bad. It's not where we want it to be to be clear. But 93.5% for that business, given where it was when we took it, I like the trajectory. You have an expense ratio drag there that comes from the fact that we have taken a multiline business, and we've made it a Commercial lines business, which we love as an environment. We like the trajectory. So would we put more capital there? Yes, no doubt. The only caveat, Doug, is that in the U.K. Commercial lines business, we are integrating the acquisition of Direct Line, which we've done in '24. And it is the real first acquisition by my team in the U.K. I'd be careful to drop a second integration because, by the way, it's not just that they're integrating Direct Line, we're investing massively in systems, we're investing in risk selection techniques and data, we're investing in our claims strategy. And there's so much bandwidth an organization can have to deliver the goods in an acquisition. But as an attractive marketplace, I would put capital in the U.K. Commercial lines, yes. Ken, that was a high-level perspective. I don't know if you want to add some color.
Kenneth Anderson: Well, no, I mean, certainly not on the M&A front. But just on the quarterly performance, the 93.5% was solid. cats were slightly lower by 2 points. But on the other side, we had the large losses. And those large losses didn't reach the cat threshold. So that's kind of part of the story why the current accident year loss ratio was a bit higher. But overall, as you've said, we're in the 92%, 93% zone, so broadly in line with expectations, but not where we're aiming to get to, which is trending down towards that 90% over the next 12 or so months.
Charles Brindamour: And Doug, I'll take you back to 2022 when that business ran at [indiscernible] Q4 93.4%, 95% for the year. That's why I'm saying I like the trajectory there. And I think performance might be lumpy a bit, but I like where this is going, and I like the dynamic of that marketplace.
Doug Young: Perfect. And just one last one, just, Ken, probably for you. Like what is the deployable capital you have right now? I can do the math on how much debt you could raise. But what's -- not the capital margin, but what's the amount that you could use for buybacks?
Kenneth Anderson: Well, we have $3.7 billion of capital margin at the end of the year. And obviously, then from a look-forward point of view, significant capital generation in the year ahead, net of dividends and even regular distribution roll-up investments. If you think about the capital margin, you're right, it's there to cover volatility. And from that point of view, you can think of $2.5 billion to $3 billion of that margin would be retained in order to deal with volatility. The excess over that is certainly deployable. Of course, we're also underlevered. So when we think about deployable capital from an M&A point of view, you start to get up into the $4 billion, $5 billion zone in terms of the capital or the M&A size that we can execute on before we would need to raise equity.
Charles Brindamour: Yes. We've never been in that position, Doug. And I'm glad the M&A environment is constructive, but this is serious deployable capital before we issue shares. And I think at the end of the day, Doug, when I wake up in the morning and show up to work, I look at the ROE. And so we balance ROE, the intrinsic value of our share price, the M&A environment. And I think everything is attractive today. And therefore, we're thrilled with our prospects to deploy capital, including our own shares.
Doug Young: Yes, I would echo and I just say like you're sitting on excess capital. So it's not that you're only underlevered, but you also have excess capital, which weighs on ROE. But -- no, I appreciate all the color.
Operator: Next question will be from Bart Dziarski at RBC Capital Markets.
Bart Dziarski: I wanted to ask around the margin expansion dynamics. So you called it out as one of the factors of the NOIPS growth track record and AI is helping you with margin expansion and then commercial has got 12 quarters in a row. And we seem to keep underestimating the positive impact on PYD. So is it not time to revisit that 2% to 4% sort of guidance? Or are there other factors that keep you from doing so?
Charles Brindamour: Yes. Go ahead, Ken.
Kenneth Anderson: Yes. Well, thanks, Bart. Going back to the PYD, first and foremost, the favorable PYD is a function of the prudent reserving of the current accident year. 5.5% in the quarter, I would say, aligned with expectations around being at the upper end of the 2% to 4% range that you mentioned. And again, reflective of that current accident year prudence that we've been taken over many years. If you look in the recent past 3 and 5 years, it's hovered around 5%. And again, when we look out near term, we're saying not to be surprised if we're in that 4%, 5% range. It's more when you look out longer term, very difficult to predict where things will be 5-plus years out. And that's why the long-term average of 2% to which if you go back and look over 15 years, that's where we are. And that's why we maintain the 2% to 4% range. But certainly, looking in the recent past, we're hovering around the upper end. And that's why we -- and we think -- and as we look out in the near term, 12, 24 months, that's the zone we're expecting to be in.
Charles Brindamour: Yes. We're not that surprised by the sort of PYD we're seeing this quarter. And Bart, when we say -- when you look at results, don't strip the PYD, look at the combined, this is not just because it's convenient for us. It's because that's how the math works. When you build reserves, the actuary looks at the current accident year and they put reserves aside and they make sure that for the prior years, the reserves are adequate. But the PYD really is a function of how much reserves you build in the current accident year. And so when we say, guys, you should look at both combined, it's because we think that our actuaries have not changed their approach on the current accident year compared to what they used to do. And therefore, our view is look at both combined. Yes, the track record in recent years has been above the top end of the range. We think it will be above the top end of the range in the near to midterm. But one really should look at both combined. And when that changes, we'll be explicit about that as we have been over the past decades.
Bart Dziarski: Okay. Great. That's helpful color. And then just on the UK&I, minus 2% sounds like it's turning a corner. Is there a rough time frame as to when you would expect that growth to resume to the industry growth outlook of, call it, low to mid-single digits?
Charles Brindamour: In '26, I mean, Bart, we told you guys it would be gradual. We had -- we were in the minus 5-ish sort of zone. Q4 came in at minus 2%. That's where we're wanting to see it. And then in '26, you need to be in positive territory. And frankly, I think that's where this is headed. Our work is not done in the U.K., to be clear, there might be lumpiness and so on. But I think we'll be in positive territory this year and not too far from the industry as the year closes.
Operator: Next question will be from Mario Mendonca at TD Securities.
Mario Mendonca: Charles, as you can tell from the nature of the questions, capital is on everybody's mind. And the context, of course, is that every other large-cap financial services company in Canada is fairly actively buying back stock, while they also talk about potential M&A opportunities. So it's with that background that I want to just pursue this a little further. The $800 million in capital that was generated in the year that added to the capital margin, was that a special number? Or is $800 million doable for Intact on a go-forward basis?
Kenneth Anderson: Well, yes, not a special number. And to be clear, that's net of a $200 million buyback, which we actually did in -- over the last 6 months. So we talked at Investor Day about the capital generation of the capital that we're generating between organic growth and dividends, we consume about half of the capital that we're generating. And that includes the ongoing roll-up that BrokerLink is doing on the distribution side as well. So to answer your question specifically, no, not a specific number and probably it's net, as I say, of the buybacks that we've done.
Charles Brindamour: So Mario, I'll give you my holistic perspective on this, and I might be wrong, and we have debates about that all the time and with the Board again yesterday. When I look at our track record in share buyback over the last decade, I think the return on that capital deployed hover depending on the buyback in the 12% to 15-ish percent zone, which is good. I mean no debate there. When I look at the track record of the capital deployed in M&A, that was north of 20% and frankly, when I look at the environment in which we operate today, I think there will be opportunities to deploy in that zone, trying to strike that balance. And then lastly, I do think Intact as a firm has a range of opportunities to deploy capital inorganically that is unmatched compared to what we're being compared against in the Canadian landscape. Our footprint is 10x what it was, and we largely outperformed everywhere. I take your point. It's an important point, and it's one we'll keep debating. But at least you get my perspective on this sitting here today.
Mario Mendonca: Yes, I do. And I think those are all important points. The reason why it's so topical right now is the market just doesn't share your enthusiasm for the robustness of the results, like not this quarter, frankly, not over the last few quarters. And I think that's why it's become so topical because of that dichotomy between arguably one of your strongest quarters and then the market's reaction to it. But let me flip over to something a little different.
Charles Brindamour: I agree with you on that. We'll keep that under advice.
Mario Mendonca: Understood. Sort of a different question is early -- I think the first question on this call was about AI and disruption. And I think you got part of the way there to answering the question. But let me be a little more direct. The U.K. market was harmed, if you will. I mean it hurt a lot of the manufacturers. When distribution became -- essentially, the brokers became disintermediated, the manufacturers were impacted. The question is, the market is concerned that AI could do precisely the same thing to Canada, to the U.S. Are there structural or regulatory reasons why that wouldn't be the case? Or is it entirely plausible?
Charles Brindamour: I think one big difference with the U.K., and we spend a lot of time looking at Personal lines in the U.K. is that the manufacturers just went along with it, basically, and the relationship shifted with the distributor. I do think that the brand and the credibility of our offers in Personal lines and the importance of getting people back on track in backing those brands for me, is a big differentiator between the U.K. market and what's happening here in North America. I do think that this will change the nature of advice. I do think that this contributes -- could contribute to the fact that the direct world today is growing faster than the broker distributed world in Personal lines, but we built optionality to win on both sides. For me, this is a potential disruptor, but I think that the manufacturers, their brand and their value proposition does not disappear here. Distribution might shift as a result of that. But I think the opportunity for strong manufacturers is really there.
Mario Mendonca: And are you doing anything right now to make sure that you don't become a victim the way the U.K. manufacturers did?
Charles Brindamour: 100%, I mean Mario, we've been focused on that sort of disruption for over a decade. That's why we have built the brands we've built. That's why we've invested massively in the physical world. And that's why we're investing also heavily in our digital channel, which have been our fastest-growing channels in the past 24 months. And right now, we're doing a fair bit of work to make sure that when it comes to search that we show up prominently in all channels, including in GEO or in LLM distribution channels.
Operator: Thank you. Ladies and gentlemen, this is all the time we have today. I would like to turn the call back over to Geoff Kwan.
Geoff Kwan: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for 1 week, and the webcast will be archived on our website for 1 year. A transcript will also be available on our website in the Financial Reports section. Of note, our 2026 first quarter results are scheduled to be released after market close on Tuesday, May 5, with the earnings call starting at 11:00 a.m. Eastern the following day. Thank you again, and this concludes our call.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.