Good morning, ladies and gentlemen, and welcome to the Intact Financial Corp Q2 2021 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Wednesday, July 28, 2021. I would like to turn the conference over to Ken Anderson, Executive Vice President, Investor Relations and Corporate Development. Please go ahead, sir. Thank you, Sylvie. Good morning, everyone. Thank you all for joining the call today. A link to our live webcast and published information for this call is posted on our website at intactfc.com under the Investors tab. As usual, before we start, please refer to slide two for cautionary language regarding the use of forward-looking statements, which form part of this morning's remarks, and slide three for a note on the use of non-IFRS financial measures and important notes on adjustments, terms, and definitions used in this presentation. With me here in Montreal today, we have our CEO, Charles Brindamour, our CFO, Louis Marcotte, our Chief Operating Officer, Patrick Barbeau, Isabelle Girard, SVP of Personal Lines, and Darren Godfrey, EVP of Global Specialty Lines. Sorry, it's Isabelle Girard, EVP of Personal Lines. We'll begin with prepared remarks followed by Q&A. With that, I'll turn the call to Charles. Thanks, Ken. Good morning, everyone, and thank you very much for joining us this morning. Our communities have made great progress over the past few months, and we're hopeful for a gradual return to normalcy as we emerge from the pandemic. For us, this means continuing to be there for our customers and helping our people adapt to a new work environment. It's reassuring to see that in an important period of change and turbulence, our business can not only be resilient but also thrive and grow. Clearly, the successful acquisition of RSA is a good example of this, and we're quite pleased with the progress we've made so far. In the meantime, our business is continuing to deliver strong performance. Yesterday evening, we announced second quarter net operating income per share of $3.26, a 39% increase over Q2 last year, driven by strong underwriting and distribution results. Top-line growth of 29% was driven by the acquisition of RSA, with approximately seven points of organic growth reflecting strength in commercial lines on both sides of the border. The overall combined ratio was 86.7%, driven by strong performances across all lines and geographies. In Canada, the combined ratio was excellent at 85%, driven by strength in underlying performance. The combined ratio included one point from the tragic Lytton fire. Our claims team and On Side Restoration have mobilized very quickly to help the community get through this difficult time. Let's now look at our results by line of business, starting right here with Canada. In personal auto, premium grew 1% year-over-year. Excluding the BC Auto exit, growth was 3% driven by units. The combined ratio is very strong at 82.4%. Our personal auto business is solid, and we expect it to hit low 90s for the remainder of the year. Looking at the industry, we're seeing prudent rate tempering in the current environment, and with driving activity just five points below pre-COVID levels, we could see rate momentum return over the next 12 months. In personal property, premiums grew 5%, driven by firm market conditions. With a very strong combined ratio of 83.3% in the quarter, the business is performing extremely well. Our upper 80s track record in the past five years is a testament to the resilience of this business. In commercial lines, premiums grew 12%, driven by rate actions and solid organic growth while delivering a strong 89.6% combined ratio. Looking at the industry, we expect hard market conditions to continue, and our commercial lines business is really well positioned to deliver low 90s or better performance going forward. Moving to our U.S. commercial business, premiums grew a strong 19% in the quarter, benefiting from increased activity in COVID-impacted lines versus 2020. Adjusting for this, the underlying growth in Q2 is in the low double-digit range, supported by the continued hard market conditions. The combined ratio at 90.3% was solid as the team continues to execute on the objective to deliver sustainable low 90s performance. Turning to our RSA acquisition, a lot has happened since we closed seven weeks ago. People are largely onboarded with their roles, teams, and locations confirmed. Customers in Canada will start to move to our product and systems next week. A number of technology investment decisions have been made and are rolling. Action plans are in place across all segments to drive out performance. We acted quickly to rationalize the footprint with the sale of Denmark. It's fair to say that there's momentum. Let me provide a bit more color on Canada, specialty lines, and the U.K. & I parts of the integration as well as transition. In Canada, the integration is going really well. We're advancing on systems conversions with the first policy renewal on Intact paper to be issued in August, allowing us to leverage our core capabilities in data, pricing, and segmentation. We're building capacity to drive the internalization of RSA's claims operation, and we're starting to leverage our supply chain management expertise as well. This includes engaging our On Side Restoration business to handle a large portion of RSA's claims since close. The Canadian integration is definitely on track. It's key as this drives three-quarters of the synergies. Moving to Global Specialty Lines, the North American portfolio is being integrated as we speak with Paul Lucarelli, originally from RSA, leading the charge. We're bringing the global network into the fold, which allows us to expand our reach. We're working across our geographies to better understand our core Specialty Lines capabilities as we prepare to build our international franchise. We see the expanded Specialty Lines platform as one of our key growth engines for the next decade. Moving to the U.K. & I. Following the close, a few members of the IFC team and I spent three weeks in the U.K. engaging with Scott and the RSA team, and together we're aligned on the main areas that we need to excel to build out performance: people, simplifying the business, improving pricing sophistication, and modernizing technology. First on people. Scott has put together an excellent team, and we're delighted to be working with them to continue their journey towards building an outperformance machine. Together, we've set mid-term strategic objectives for the business, and we've had the opportunity to share our values and the importance of an outperformance mindset. We're also supporting the team as they simplify the business. By focusing the footprint, streamlining the offering and technology infrastructure, the operations will build a robust foundation for outperformance that in my view, can deliver a second-to-none customer experience. We also have a number of experts working closely with the U.K. team to share our expertise in pricing, risk selection, machine learning, as well as claims management. Overall, in the U.K. and I'm pleased with the progress so far. The RSA team has done tremendous work over the past couple of years and are already delivering solid performance. We have great momentum and people are engaged. We've talked about focusing the footprint, and we moved quickly right after the close to announce the sale of the Denmark business, which is expected to complete in the first half of 2022. The sale will generate over CAD 1.2 billion in proceeds to Intact, which lifts our IRR expectations by at least 1.5 points for the RSA acquisition. While we're integrating RSA, our teams haven't missed a beat in executing on our customer-driven strategies. On the digital front, we're continually adding new features on our mobile app to create value for our customers, driving engagement throughout their journey with Intact. We added roadside assistance to provide enhanced protection for our customers, and our recently launched claims chatbot now handles close to 90% of the digital chats with our customers. Our distribution channels are also delivering on our customer-driven promise. BrokerLink is now writing over CAD 2.3 billion of premiums annually, an increase of over 25% since 2019. With a robust M&A pipeline, we think that Joe D'Annunzio and team can double that business over the next five years. There's a lot going on and the business is firing on all cylinders. Over the last year, we've made very good progress on all fronts. Throughout the pandemic, we've lived our values and delivered on our purpose to help people, businesses, and society prosper in good times and be resilient in bad times. We've also transformed our business with the addition of RSA, all the while continuing to deliver second-to-none customer experiences. This would not be possible without our people, and I want to thank them for their continued drive, focus, and energy. We've added an impressive amount of talent and expertise through the RSA acquisition, and I want to welcome everyone into the Intact family. Our business has a lot of momentum. Our balance sheet is very strong. We have a clear focus on what we need to achieve, and I'm more confident than ever in our ability to deliver on our promise to customers, meet our financial objectives of 10% NOIPS growth annually over time, and 500 basis points of ROE outperformance every year. With that, I'll turn the call over to our CFO, Louis Marcotte. Thanks, Charles. Good morning, everyone. After six months of planning together, on June 1st, we closed the RSA transaction and welcomed RSA's Canadian, U.K., and international employees to the Intact family. Financially, not only is the deal immediately accretive to net operating income per share, it also brings increased resilience to our balance sheet. Strategically, it expands our leadership position in Canada, bolsters our specialty lines capabilities, and opens up new markets in the U.K. and Ireland at scale. I will provide some more color on the financial impacts from RSA shortly. First, let me make a few comments on our strong second quarter results. Net operating income to common shareholders increased by 49% year-over-year, with all earning sources contributing to this growth. Underwriting income grew 63% compared to last year to CAD 464 million, as strong underlying performances across the business continued, reflecting the benefits of our actions over time, mild weather conditions, and the impact of RSA. Net investment income of CAD 154 million increased by 9% year-over-year. For the full year, we still expect net investment income to be flat before including the impact of RSA, which will add roughly CAD 100 million to 2021 net investment income, including the CAD 13 million recorded in the month of June. Distribution EBITDA and other income grew an impressive 51% in the quarter, driven by better-than-expected variable commissions as well as solid organic and M&A growth. We expect growth in the second half of the year to taper towards a 10%-12% range as we compare against a strong second half of 2020. Although RSA was included in our results for one month only, it added CAD 57 million of underwriting income and CAD 13 million of investment income to our operating earnings. After reflecting financing cost and dilution from the shares issued, the net operating income per share accretion is high single-digit for the month of June. We expect to maintain a similar level for the second half of the year. Looking at underwriting results in a little more detail. Healthy, favorable prior year development contributed to our strong results in the quarter and year-to-date. We have been, and continue to be, prudent in establishing current year reserves, particularly considering uncertainties related to COVID. We maintain our longer-term expectation that favorable PYD will be in the range of 1%-3% of reserves annually for the Intact group in aggregate. Depending on how and when the uncertainties unwind, we expect to see favorable development in the upper half of the range in the shorter term. In personal auto, the underlying loss ratio of 59.6% was strong despite the impact of premium relief and reflects our actions over time. The relief program launched in March is now closed, and we returned an additional CAD 30 million to customers in Q2, bringing the total program in 2021 to CAD 105 million. Looking at commercial lines in Canada, the underlying loss ratio of 51.3% is the best performance we have delivered to date. In the U.S., the underlying loss ratio of 51.6% was strong, driven by corrective underwriting and profitability actions, as well as rate gains across the book. Momentum in commercial lines is strong on both sides of the border and well-positioned for low 90s or better performance over time. On expenses, the overall Canadian expense ratio of 32.9% for the first half of the year increased 2.2 points over last year. This was driven by higher variable commissions, consistent with the strong underwriting performance in the first half of the year. The combined ratio of 90.7% for RSA in June was solid, driven by underwriting performances in both Canada and the U.K. & I. These results are also largely the result of lower frequency, mild weather, and profitability actions offset by elevated CAT losses in Canada. Although one should not assume that results for June are indicative of full year results, we are pleased with the results so far and are increasingly confident in our ability to deliver the earnings accretion we promised. We are entering the second half of the year on solid footing while closely monitoring driving habits as people progressively go back to their offices, as well as CAT activity. In terms of RSA's underwriting results for the second half of the year, we believe the best starting point on top line is to use half of the premiums of 2020 as reported in their annual report for both Canada and the U.K. & I. The combined ratio is difficult to predict, of course, but we would use the 2019 as the base year to exclude the impact of COVID in 2020. Both Canada and U.K. & I. reported combined ratios in the mid-90s range. If you shave a point or two for profitability improvements already achieved and add a bit of synergies. You have a good idea where RSA's underwriting results should land in the second half of the year. Keep in mind, it's important to anchor any expectations with our accretion estimates. To further de-risk the acquisition, we entered into a transaction with a reputable reinsurer. Subject to specific exclusions and limitations, this agreement provides us with a recovery of 50% of adverse development up to GBP 400 million on the U.K. & I claims liabilities for 2020 and prior accident years. The net cost of this reinsurance will be recorded in Q3 2021. With the addition of RSA, it is also appropriate to revise our annual estimates for CATs, which reflect a long-term view of trends. We are raising our annual CAT expectation from CAD 300 million - CAD 570 million per year to reflect the growing premium base and change in business mix. We now expect 2/3 to impact personal lines and continue to expect one-third of the annual CATs to occur in each of Q2 and Q3. Having said that, one month into Q3, we have experienced a couple of weather events in the U.K., which will translate into CAT losses for the third quarter. As of today, based on early estimates, these losses are within our revised CAT guidance. On synergies, we are on track to realize the stated CAD 250 million in run rate synergies within 36 months, largely generated from claims internalization and consolidation of shared services. We continue to expect integration and restructuring costs for the transaction to run at 1.5-1.7x the annual run rate synergies. In the second quarter, we recorded approximately CAD 35 million of these costs, and we expect to incur half the cost by the end of 2021. The remainder will be recorded progressively over 2022 and 2023. These costs are reported as non-operating results and do not include the net cost of the adverse development cover. Moving to our balance sheet. On closing of the acquisition, we recorded the acquired assets and liabilities of RSA at fair value, together with the associated transaction financing. Coupled with our strong performance in the quarter, this took our book value per share to CAD 77.67 on June 30th, an increase of 44% compared to Q2 last year and up 25% compared to last quarter. Our operating ROE increased to 19.8% in the 12 months to June 30th. For full year 2021 and going forward, we are aiming for a mid-teens operating ROE level in line with our historical average. Our financial position continues to be strong. We close the quarter having incorporated the RSA acquisition with approximately CAD 2.6 billion in total capital margin, a healthy buffer to absorb potential shocks. Our debt to total capital was just above 24% at the end of the quarter, better than we projected thanks to the strength in our book value. Deleveraging will accelerate in 2022 as we expect to use most of the proceeds from the sale of Denmark, assuming it closes, to reduce our debt and reach our 20% target earlier than planned. With the acquisition close and integration and synergy realization underway, we are on track to generate high single-digit accretion to Net Operating Income Per Share in the first 12 months, moving to upper teens within 36 months. We produced an excellent set of results for the first half of the year while accelerating our strategic roadmap. Our focus is now on capitalizing upon the momentum across the business while delivering on the strategic and financial merits of the RSA transaction. With the strength of our teams and our platform, we are well positioned to deliver on our financial objectives in the years ahead. Before giving it back to Ken, I will take a second here to thank our teams in finance, actuarial, legal, and IR on both sides of the Atlantic for their significant effort over the past months to produce quality financial information for investors on a timely basis. I'm very proud of what the teams have achieved, and I want to thank them for their contribution. With that, I'll give it back to Ken. Thanks, Louis. In order to give everyone a chance to participate in the Q&A, we would ask that you kindly limit yourselves to two questions per person. Of course, if there's time at the end, you can certainly re-queue for follow-ups. Sylvie, we're ready to take questions now. Certainly. Ladies and gentlemen, if you do have a question at this time, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, simply press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have a question. Your first question will be from Geoff Kwan at RBC Capital Markets. Please go ahead. Hi. Good morning. My first question was on personal auto. I think you've talked in the past about potential for premium increases when driving returns to more normal levels, but I was curious around how much the combined ratio may also influence the timing of any sort of premium increases. For example, if we get driving back to normal, that presumably from a timing perspective, the combined ratio is probably going to increase in a reasonable amount of time. What if we have a scenario where driving is back to normal, but the combined ratio remains better than before? Do you worry about any sort of potential optics for the industry from consumers around increasing premiums if traffic is back to normal and the combined ratios remain better than usual? Geoff, good morning. Thanks for the question. I'm not worried about that. This market is super competitive. It's always been very competitive. The industry on average has been a single-digit ROE business, and catching up with cost in a highly competitive environment has been a challenge for the industry. That's why outperformance is the name of the game in that business, and that's why we've built a big outperformance margin in automobile insurance. My perspective, the industry entered into the crisis with a meaningful amount of work left to be done to deal with the things that we were focused on since 2016. Think about inflation on the liability side of things, inflation in physical damage. We've put much of that work behind us. I don't think it's the case at the industry level. You don't need to go back too far to see that the industry, even in 2020, had adverse development and still poor results in the first half. I'm not really worried about that. I think the industry is quite competitive. I think what people should be focused on, in my mind, is to make sure that prices are adequate when driving returns to normal, taking into account the pressure that existed in the system before COVID. Not worried about that, Geoff, one bit, and I feel like we're really well positioned with the work we've done on relief. Our pricing position and the flexibility we've covered to react when the time comes. Okay. Just my second question was with respect to the RSA acquisition for the non-Canadian businesses that you acquired. I know, I think you've talked about evaluating them over the next year, but are you able to say whether or not there's been any third parties that have approached you with interest about some or all of those assets? Clearly, when there is a transaction of that nature, first of all, many people were surprised by the transaction. Yes, you get inbound calls from time to time. I think that we said very clearly at the start of this transaction that we would evaluate our strategic options for Denmark. We did, and we acted on the inbound that we've received a couple of weeks after closing. As far as the rest of the platform is concerned, we're really focused on building out performance here and making sure that we're being rewarded for the risk and the capital that's being deployed. Clearly, the U.K. is the biggest part of this, and we're focused on building out performance there, and there's good traction. We have a very good team. Okay. Thank you. Did you have any further questions? No, that was it. Thank you, Mr. Kwan. Next question will be from Paul Holden at CIBC. Please go ahead. Thank you. Good morning. My first question also relates to personal auto. Charles, you gave an outlook for the remainder of the year, but it's a little bit different than what we've seen from some of the U.S. auto insurers, where they've started seeing a spike in claims or accident frequency related to a returned activity, and then also have called out an acceleration in severity. Wondering how your outlook is different than the U.S. insurers and maybe specifically drill down a little bit more on what you're seeing on the severity trends today. Good. Well, good morning, Paul. Thanks for your question. Obviously, if you compare frequency in Q2 2021 with frequency in Q2 2020, you'll see an increase. It's obvious. The state of the world was very different a year ago than you see now. I think that one needs to look past what happened Q2 over Q2 and look at where driving is going and then look at where inflation is going. What I'm thinking, Paul, maybe we start with Isabelle, who will give us her perspective on what we're seeing in terms of activity, and then Patrick will take us through what we're seeing on the severity and inflation side of things. Isabelle, why don't you take this? Yeah. In terms of driving, what we see with the latest waves of COVID in 2021, we saw some reduced driving in the spring 2021, but as you were mentioning, Charles, nothing to the extent we saw in the spring of last year in 2020 when we were in full lockdown. Having said that, driving activity is on the rise since early May, and we're now sitting about just five points below the pre-COVID levels of driving. As vaccination continue to progress, we expect that the driving will also continue to rise in the coming weeks. Having said that, looking at the average of driving, we can think that we're close to normal, but normality may be a bit different in the coming months. We've been looking closely at various data coming from our telematics, and while one factor that changed with the pandemic, there's also other habits that have changed. When people are driving, where people are driving, and how people are driving are example of things that we saw some changes during the pandemic. A few example of things that we observed that are not necessarily back to normal yet. Rush hours and congestions are example of things that when we look at the weekends, we're pretty much at historical levels, but when we're looking on the weekdays, especially for the rush hour morning we see that we're still below historical level. We also have observed that driving has been recovering faster than public transit usage and in the last few weeks, so we have seen public transit picking up. Those are examples of things that we're continuing to follow, and we believe with our data, we'll be ready to quickly identify any new trends that may last post-pandemic and adapt our pricing accordingly. Thanks, Isabelle. Patrick, maybe we can talk about inflation a little bit. Yeah. In auto, the main driver of inflation on severity continues to be the technology in cars. That increases the cost of parts and the complexity of the repair process. This is not something new in our view. We've been talking about it for a while. It's what's central to our action plans two or three years ago, and it continues to put pressure on severity. It is important to mention that we can quickly reflect this trend in our pricing given our price is specific to each make, model, and year. As new models come out in the market, we leverage our claims data to price that complexity in the parts and repair process even before, I would say, the claims experience actually shows up. We supported that with our actions in claims and supply chain to allow us to mitigate that trend over the past two years. Overall, we've seen mid-single digits increase in repair costs over the past year. With regards to maybe the price of new cars and the inflation of used cars, it is there. Again, here our pricing can adjust very quickly on the new cars as well as representing the depreciation patterns that you want in older model years. Maybe my last comment is overall in Q2, when we look at both our experience here in Canada and in the U.K., the total losses, which is where we settle the claims based on market value instead of repairing the car, have seen low single-digit inflation rates. About half what we see in the cost of repair. Thanks for that, Patrick. Yeah. We try to make sure that what we read in the newspaper is not what we talk about in the earnings calls. We have a fair bit of granularity here, and I'll say there's a lot of moving pieces at the moment, and that's the sort of environment that we love because the pricing strategy that we have is super focused and segmented to take into account behaviors. On the inflation front, I think Patrick and team have done a fair bit to tame some of that inflation over the past few years, and a big chunk of it is reflected in our pricing thought process. The last point I'll make is that there is flexibility at the moment in terms of our ability to react, and I think the team is on top of that. Got it. Okay. My second question is related to the revised CAT loss guidance. Are you able to unpack how much of that is related to the RSA acquisition and how much of it is related to increase in expected claims trends? Paul, there's not much in terms of increased expected trend. I think it's the makeup of the business at this stage, but I'll let Louis give you a bit of color on that. Well, I think that's the answer. It's mostly RSA driven. You're taking into account the addition of the Canadian exposures into our Canadian expectations, and then the addition of the U.K. perimeter as well, with maybe a slightly different business mix. When you combine that, this is what drove the increase we shared with you today. It's much largely the RSA impact that we took into account. If I can ask just a quick follow up on that answer, is the mix also different within RSA Canada? It looks like there's a little bit more CAT exposure within their book versus Intact's legacy book. Is that accurate? No, I would say when we refer to the change in the mix, it's more adding the U.K. volume that has a bigger weight on property. Forecast, it adds a bit more than its share from a volume perspective, but the books in Canada don't have a big difference. It's mostly proportional. Okay. Got it. Thank you. Thank you. Next question will be from Doug Young at Desjardins Capital Markets. Please go ahead. Hi, good morning. It was stated in the release that there's regulatory reforms coming in the U.K. that could result in some volatility and opportunities for RSA's personal line business, and I think that's early next year. I just wanted to delve a little bit into that. More specifically, what do you mean by volatility and opportunities? Good morning, Doug, and you're right. Yeah, these reforms are reforms that will take effect largely at the end of the year, and therefore early January. They're driven by the FCA, so market conduct regulator in the U.K. Let me give you a bit of context to understand what the intention is there and then maybe share my view on what it means for the marketplace, and this will help answer opportunity and volatility are the words that you're interested in. I think if you look at the U.K. personal lines market, because this is largely about personal lines, we've seen massive shifts in distribution over the past couple of decades. It's really driven the market to be a price-only type market. As a result, you see that customer retention or loyalty is much lower than what we're observing in other markets and certainly here in Canada. There's a lot of pressure to attract new customers at low prices. When you put all that together over time, a meaningful disconnect has been created between new customer pricing and existing customers' pricing, which in effect penalizes loyalty. Obviously, that's a problem. The FCA reforms, while are a few pieces, that is the big issue in my mind. It really aims at restoring a better balance between new business and renewal pricing. We think it makes sense, actually, and we support the intent of the regulator. There's debate as to how the rules will be applied and so on, as there always is, but we think the intent is a good one. What it means for the market and what it means for us, the reforms really are focused on home and auto. We think that because there's a meaningful difference in market practices between new business and a renewal that in January, you'll see significant price dislocation. New business pricing is likely to go up somewhat materially in my mind, while renewal pricing will go down. The net effect of these changes is yet unclear. It's a very competitive marketplace, and we'll take a prudent approach as we approach this change. Dislocation, we think, is an opportunity to grow our personal lines portfolio and take advantage of that to improve price sophistication. The teams in the U.K. are totally focused in my mind, and we spent a fair bit of time on that, Doug, when we were in the U.K. a few weeks back. Team will be ready, and we're using this opportunity to lend Canadian pricing experts to support the good work of our teams in the U.K. What we really like about the U.K. personal lines market is the fact that there's tremendous flexibility to modify prices and leverage pricing sophistication very quickly. In fact, much greater than what you can see in most provinces here in Canada. Clearly, our plan, Doug, is to really use all that flexibility to deploy the best science in predictive analytics. Overall, I think the reform is a positive one for the U.K. personal lines market in the long run. In the near term, it'll be windy. There'll be a fair bit of dislocation, but again, lots of moving pieces. We like that, and I think the team is ready for that in the U.K. Basically what I'm getting at too is when I hear you talk about dislocation, which I've heard you talk about many times, I always think of M&A, and that's really not the focus here. The focus is not when you think of dislocation and opportunity M&A, it's more taking advantage of a change in the marketplace to better your business, essentially. Yeah. I think that's right. Doug, and M&A depends on the extent of the dislocation in the market, but our comments were far more geared towards day in, day out market activity. Yep. Second, just on the prior year reserve developments, another quarter of strong results there, and you've kind of had your ups and downs over the last few years. It feels like you've adjusted down your guidance in the past. Are we heading into another level here? Can you talk a bit about some of the drivers and what you're expecting in terms of contribution from RSA on the reserve development side? Sure. I think, Doug, it has not been the same number every quarter. I'll say this, there's no doubt about that. When you say up and down, it varied over time, but if you look at the track record and if you look at every year, it's positive pretty much all the time. I think I want to make sure that this is clear when we look at our historical track record. Structurally speaking, a lower interest rate environment leads to a lower expectation of prior year development. I think that's one key element that drove the guidance we've provided between 1% and 3% over time. There's a number of moving pieces. We're being cautious. Maybe I'll let Patrick give you his perspective on PYD in aggregate, and then we'll see if it covers the elements of your question. Sure. Yeah, as Charles was introducing, the lower levels of interest rates over the past two years until today led us to provide guidance in the 1%-3% range for favorable PYD. On the other end, over the past few years with pressure, inflation pressure in auto, and more recently the additional uncertainty around claims, and to be specific here, we're talking the indirect effect of COVID related claims on the long tail lines. We took a very prudent approach in the reserving in that context. In the short term, this might create a little more volatility in the PYD, but our cautious approach on these aspects give us a very good likelihood in our view to be on the higher part of the range of 1%-3%. That's for total IFC, including the RSA book. Probably we can expect Canada to be slightly above what we will see in the other parts of the book. Q2 was largely an illustration of this. It was helped by a couple of large files, and the fact as well that in short tail lines, we always expect to see a bit more of that in the first half of the year than in the second one. I would say largely aligned with reflecting, I guess, that dynamic. The last thing I would say is we need to be careful not to totally isolate PYD from the current accident year because reflecting additional risk in the reserves in the current accident year is what creates potentially more favorable PYD afterwards if and when the risk does not fully materialize. Yeah. I think it's a very good and an important point. I think when I look at the underlying performance of the business today, I think in aggregate, we're not too far off from what the underlying is at the moment when PYD is in. On the U.K. per se, we spend a lot of time. A number of us spend a lot of time on looking at these reserves over the past few years. We're quite comfortable with where we are. We strengthened the balance sheet at closing. We bought an adverse development cover. The idea here is not because we were uncomfortable with reserves, it's more with the fact that there's an unknown. We're not from the U.K. We haven't been involved historically. It's an organization that has a long history, and therefore there is some unknown. We felt that having an adverse development cover similar to what we've done in the U.S. was a good risk management practice as you enter a new market. We're comfortable with the position we've taken in the U.K. and believe have established a degree of caution that's very consistent with how we reserve in general. Obviously, if you're new in a market, you will take a more prudent approach over time, and that will not be different this time around. That's why our perspective is within the aggregate range, as Patrick said, of one-three. We should be at the upper end, and the Canadian business should, in the near term anyways, help us be at the upper end of that range. Appreciate the color. Thank you. Thanks. Thank you. Next question will be from Mario Mendonca at TD Securities. Please go ahead. Good afternoon. Louis Marcotte, probably best for you. I'm looking precisely at what Charles just referred to when he said that took a conservative look at the balance sheet on closing. I've been focusing on note four of your financial statements. Obviously, I'm not going to go through every line. There's a lot of complexity here. Could you speak to the magnitude of the adjustments made to RSA's claim liabilities from what you saw on the financial statements to what you arrived at, the CAD 11.6 billion or CAD 11.7 billion of claims liabilities? Was there a meaningful increase in claims liabilities from what you saw on the financial statements to where you're at today? The word meaningful is maybe questionable here, but what we have done in the closing process was firstly align our accounting practices between ourselves and the acquired balance sheet. They weren't necessarily providing for the reserves the same way we were, and we needed to have consistent accounting policies and approaches across. That drives most of the adjustments we've done. There were some areas where we thought we should top up a bit, which we have done. This is what I think Charles refers to as strengthening. Overall, I would say, felt very comfortable in the U.K. perimeter with where they were and just topped up a bit where we thought it was needed. Then in Canada, aligning ourselves between how we viewed the need for reserves was aligned between those two countries. I won't qualify specifically the magnitude here, but there was strengthening and alignment needed to bring the balance sheet to the same standard as ours. Yeah. Maybe Mario, if you look at some of the strengthening we've done, I'd say two-thirds of it is probably Canada, and the bulk of it was accident benefit driven in Ontario. Mario, I think we've taken the street along over the past three, four years on the issues there. We've said that we felt that the industry was a bit late, so we were very consistent with our observation with the RSA reserves, then a third in the U.K. & I market focused on longer tail lines of business, commercial liability, just to make sure that we were on par with how we otherwise would have reserved. Yeah, my inclination and sort of the nature of the question is not so much that I think the company wasn't conservative, but rather that the company has been very conservative insofar as how this acquisition was accounted for. Maybe more generally, where I'm going with this is the PYD in personal auto and PYD generally has been good, and we've talked about that a little bit on this call. I understand that's not unique to Intact, that the industry as a whole seems to have been somewhat conservative in setting up the IBNR in personal auto over the last little while. The nature of my question is this. Can an industry experiencing this level of PYD apply for pricing increases? Can you actually do those two things simultaneously, record big PYD and apply for pricing increases at the same time? You can. I think, Mario, if you go back to the industry results right to June 2020, there was adverse development. I'm talking automobile insurance in particular. If you look at PYD for us in automobile insurance, indeed so far in 2021 we have 3.5 points of favorable development. Not that I want to bring back all the hard work we've done in the three, four years before that, what you will see is that the PYD in the few years before that was out of sync with the historical context because of inflation, was essentially flat. Therefore pricing. How does pricing work? Pricing works in the following fashion. You go back, you take three-five years, the last three-five years, you project them in the future, you use that to figure out whether your prices are adequate. I would suggest that if you look at the past five years where there's been no favorable development or adverse development at the industry level, you project them in the future, you restore performance for driving. The answer is, if you do your job properly from an actuarial point of view, you can have favorable developments in one year and see great increases over time. There's a lot of actuaries in this call. If I'm wrong, guys, you can correct me, the mechanics of this would suggest you can. Thank you. Thank you. Next question will be from Tom MacKinnon at BMO. Please go ahead. Yeah, thanks. Good morning. Just to start off, just to be clear, the increase in the CAT guidance has nothing to do with your NOIPS that you're expecting from the RSA acquisition. Is that correct? I mean, that was all factored in, but you're just announcing that to the street. All that CAD 570 CAT stuff is factored in when you did your NOIPS, correct? Correct. 100%, Tom. Yeah. Okay. Just wanted to make sure everybody's clear on that. As you've looked further at the RSA portfolio, in particular, the CAD 250 million in expense synergies doesn't have anything to do with improving the loss ratio at RSA or really improving the yields at RSA. Do you have any update as to what the potential is for those kind of improvements as you've gone another three months here with digging into these portfolios? Yeah. Tom, thanks for your question. It's the daily question at Intact, and we want to make sure we leave nothing off the table, to be clear. Why don't I ask Louis to share his perspective, and then I'll add some color. Thanks, Charles. On the CAD 250, that number is still the target we're aiming for. You're right, it is largely expense-driven. We have not yet updated any guidance for loss ratio improvements. Those are the ones we're working on. They may be a bit longer to develop as we study the data and compare it to ours. I am the one asking the question to Charles every day on how I can reflect that in my estimates, still waiting for those estimates to come back. At this point, we're sticking to the expense synergies of CAD 250, working on making sure that those are delivered as quickly as possible. Our visibility on those is quite strong. We're very confident in realizing them. The loss ratio ones will be incremental to those synergies. Yeah. On the expense side, given where we are in the integration, I'm very comfortable with those because we have the bottom-up view of the synergies we can generate on the expense side of things. We're tracking that on a monthly basis. A process we're very familiar with. On the loss ratio front, it's clear that there are opportunities here. We're moving fast in bringing the business on our platform in Canada and in the U.K. We've done a lot of work with the team in the past few months. It's been demanding, no doubt about that for the team, but they have really good momentum. I'm very pleased with the action plans they have. We've got detailed metrics to keep track of the performance improvement plan, and I see some upside in the U.K. & I portfolio as well. I think that the upside in my mind is good, and we'll try to get as much as we can, and the market, I think, is conducive. I see this also as a way to offset potential surprises. We want to refrain at this stage from updating views on accretion and loss ratio improvement, but we're certainly focused on those. The yield performance or any way of increasing the yield on the RSA portfolio is pretty low. Absolutely. We're working on this. We're working on the asset mix. Of course, we've reset the yields to the current yields upon the acquisition, that took them down to market yield, essentially. As we integrate the portfolios together, we are moving to a bit more of an Intact mix over time, and we are sort of leveraging some of the opportunities and expertise they have at RSA to move it up. At this point, our guidance reflects some of the asset mix that will be taking place in the next 6-12 months. That was in my CAD 100 million investment income I shared with you earlier. We're going to be working on trying to optimize that a bit further and creep it up. At this point, though, we're sticking to the CAD 100 for this year at least. Yeah. Werner Muehlemann and David Tremblay, who run the asset side here at Intact, have been totally on top of the integration. First order of business, obviously, is governance and the operational integration of the asset side. Done a big asset optimization exercise in the past few months. There are indeed opportunities. As you know, our thought process on the asset side is total after-tax return, optimized for regulatory capital requirement, local tax regime, and obviously risk. The fact that we're operating across really three big platforms creates opportunities to optimize the mix. We've got a plan for that, and we'll start to execute on it in the coming weeks. Okay, the quick follow-up is on the integration costs. Were those CAD 35 million in the quarter? I think that's what you said, because it shows acquisition integration restructuring costs as being CAD 138 million in the quarter. Maybe you can describe what the differences are and how recurring this 138 number in this quarter will be. The CAD 138 includes the acquisition costs as well for the transaction. It's the acquisition part of the expense. There are also some integration from prior acquisitions that are still going in there. Specifically for RSA, it was CAD 35. Then what we expect in the future quarters, not so much on the other restructuring costs, but on the RSA one, is what I guided to half of the guidance of 1.5- 1.7 x synergies. No acquisition costs that would have been baked into the second quarter number, I assume, correct? T hey're largely done. Okay, thanks so much. Thank you. Next question will be from Jaeme Gloyn at National Bank Financial. Please go ahead. Hi, Jaeme. Yeah, thanks. Just a couple of quick clarification questions. First, the CAT guidance increasing from CAD 300- CAD 570. Did you state how much of that increase is in Canada and how much is in U.K. & I? We have not. We sort of stayed away from that. Simply because the perimeters give us a bit more diversification opportunities. Not sure whether it'll spike in one country or the other. We stuck to an overall theme and provided guidance in terms of parameters and timing. We stayed away from the countries. To be fair, if I was to model something, maybe I'd put 2/3 in Canada, 1/3 in the U.K. We're sort of not committing to it in terms of being a firm commitment here. It's more of a bit of a guidance. Rather than that, I wouldn't go further than that. Understood. In terms of the Denmark asset sale, is the valuation of that asset, and I'm assuming there's a gain that will be attached to it as part of the transaction, in the book value as it's stated today, or should we expect to see a gain on Denmark in the next year when it closes? Our share of the asset is recorded on the opening balance sheet at the value that was agreed upon with our partner, Tryg. That's how the value there comes up. The transaction has been announced, it's not closed yet. There's a couple of conditions to get to closing, and that's expected somewhere early in 2022, probably end of Q1 or early Q2. The difference between the price agreed to on the sale and the value that we've agreed to with Tryg will be recorded at that time of closing. Yeah, I think what I mentioned in my remarks, Jaeme, is that when this transaction at the aggregate level from an economics point of view should help the IRR by 1.5 points. As a result, if you're consistent, then you would expect a gain when we close. Okay, good. On the same page on that front. In terms of the distribution income in this quarter, significantly higher. Can you break out or walk us through the drivers of that gain? I'm seeing commissions on variable revenues. Just sort of explain what that is and then how much is On side contributing to the upside here. Thanks for the question, Jaeme. Quite happy with the growth here we're seeing in our distribution income. Very well aligned with our objective of growing distribution and to add a strong earning stream that support our mid-teens ROE. This is clearly going in the right direction. It grew 51% in Q2, and I would say about 33% of the 51 or 33 points of the 51 is really driven by the variable commissions that has been part of our underwriting performance so far. You see it in the insurance business with an extra expense ratio or a higher expense ratio from commissions, and this comes back in the distribution income. Of the 51%, 33 points are driven by these variable commissions. There's another 13 points that's driven by what we consider to be organic growth of the business. You'll recall last year in the second half of the year, we had pretty solid organic growth in our distribution network, and this is carrying on in the first half of the year. Those are the two main drivers. You ask about On side. Interestingly, On side, you remember when we bought it, was meant to be a counter-cyclical earning stream when we had multiple CAT events. Well, half year 1 has been fairly quiet on the weather side. On side has been probably a bit quieter than we wanted. Has not been a huge contributor to the growth in Q2 so far. There's lots of potential for On side going forward, and particularly with the RSA acquisition. From a Q2 point of view, is not a big driver. The last comment I'll make there is, of course, 51 looks really good. It is. We're also comparing to Q2 last year, which was a tough quarter from a distribution point of view. You might remember we were very cautious in our earnings expectation there, given the uncertainty around COVID. Not only we have good variable commissions, we have good organic growth, but we're comparing to a weak Q2 last year. Those are the main drivers, and I would say we're guiding right now to 10%-12% growth in the second half of the year. That's really taking into account that last year's H2 was very strong. If you combine 10%-12% growth in H2 with what we've done so far to date, this business is growing north of 25% for the full year. A big contributor to our earnings growth. Thanks, Louis. I think there's a couple of things that are worth highlighting in this. The organic growth of BrokerLink is really strong, and clearly, commercial lines hard market is helpful and really conducive to strong performance and distribution. Might be good, Darren, if you highlight your view on the state of the commercial lines market. The other point I think we should touch on is because we're bringing Onsite into the question, just to help you visualize what we can do with Onsite, I'll ask Patrick to talk about what's going on in B.C., in Lytton, and what can be done. Darren, maybe quickly. Yeah. Thanks, Charles. I think I would describe the conditions in Q2 as very consistent with Q1. A hard market, north and south of the border. Capacity continues to be tight. Rate increases are very consistent from Q2 - Q1, and we see no signs of that abating at all, and really strong performance from a rate standpoint north and south of the border. Now, obviously, you've got to be careful in terms of the portfolio in the U.S. compared to some of the other benchmarks that are out there. Different segments of the portfolio are quite strong. I think accident is one area that due to profitability, there's a little bit of pressure from a rate standpoint, but again, that's a line of business that's operated consistently in the 80s, so no surprise there. Otherwise, outside of that, we're pushing well into the double-digit range in other lines, and that's very consistent with what was seen in the last quarter, but also in the last 12 months prior as well. We're seeing good strength in the U.K. as well. Maybe on Onsite, Patrick. Yeah, just to illustrate a little bit, we talked, I think, in the remarks about the wildfire in Lytton, B.C., that happened in the last few days of the quarter in June. First of all, just to reiterate that the full estimate of the ultimate cost of that was reflected in Q2. From an operational perspective, we were able to deploy our internal CAT team, but also our national capacity of On Side to support the team of Lytton. Examples of what this brings to the response is On Side has been retained to provide all the security fencing and checkpoints in the city. We've been retained as well by the Lytton First Nation to coordinate all the white good removal, fridges, and freezers, which always require special handling. We continue to work very closely, both with our internal CAT team and On Side Restoration with the town of Lytton and Lytton First Nation, as well as Team Rubicon, who is an organization of military veterans who's leading the response for the industry there. We've been deploying a lot of capacity to support our customers who are facing obviously a difficult time. Thanks, Patrick. Okay, great. That was very good. I'll re-queue. No further questions, Jaeme? Well, actually, if there's nobody else, I did want to touch on one aspect, and that's the ROE objective, 500 basis points. I presume that applies to all of or each of Canada, U.S., U.K., and I was just hoping you could dive into what that means from an ROE perspective in each geography and perhaps maybe timelines around that? Well, that's a good question. We're firm on the ROE outperformance objective of 500 basis points every year. That's the first point. As you know, outperformance, Jaeme, is a mindset, and it's driving the strategic choices we're making, the investments we're making on the data front, on the AI front, risk selection, claims, and supply chain management. No change. This is the lens we use when we go in other markets as well. If you look at the work we've done and the work we'll do with Scott and team, we're really focused on risk selection, and we're working with Karl Helgesen really strong, the claims head of the U.K. business as well to help him create outperformance there. There's no change. Obviously, our outperformance position in Canada is really strong. As we increase our scale advantage, we'll be now two point five-ish times bigger. Number two, this is really helpful to expand our advantage. We'll be focused on this. If you look at the U.S., in the U.S. from my perspective, we have created now close to four-ish points of combined ratio advantage against our peers in specialty lines. I don't think we're 100% there, but we're clearly well on our way. I think in the U.K., we'll need probably three-ish years, in my mind, to go from being in the industry pack to creating some distance. That is the definition of success for us. A bit of headwind, I would say, in terms of ROE performance as you enter new jurisdictions. I think there's no doubt as to what success looks like, and this shapes where our time, our energy, and where money goes. If I can add, Charles, operating basis, still aiming for that mid-teens level and confident that we can maintain that in the current environment. I think that's strong. When we look at outperformance, what we're building now is in fact a blended industry ROE that will integrate a weighted level of industry ROE in the U.S. and then eventually industry ROE in the U.K. that we'll compare ourselves to. Publicly, because remember, we manage our balance sheet centrally from all the asset is essentially managed centrally. Therefore, the ROE of IFC is the one we want to compare to. The best comparative for us would be a blended ROE between the three perimeters we operate in. We're building that and trying to build that. It's a bit difficult to have good industry data in the U.K. right now. We're putting those together, and you'll see them getting published more and more over time in our financial reports, so you'll be able to see how we track. I would say most importantly on the operating ROE part, that is still firmly in the mid-teens range going forward. Yeah, I think it's important to keep in mind outperformance is the mindset. At the end of the day, if outperformance leads in certain jurisdictions to single-digit ROE, it's not good enough. We're not shying away from being rewarded for the risk we're taking, even if we outperform. I think there's work to be done, but those two core principles are the lenses we're using to assess the footprint at the moment and how we're positioned in each market where we operate. That's a great answer, and look forward to the upcoming disclosures. Thank you. Thank you. Thank you. At this time, Mr. Anderson, we have no other questions. Please proceed. Well, thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Transcripts will also be available on the website in the Financial Reports and Filings section. We'll be hosting an Investor Day on Tuesday, November 30th. The event will be held virtually and will be accessible via webcast. More details on the 2021 Investor Day will be available on our website in the coming weeks, and we look forward to welcoming you at the event. Our third quarter 2021 results are scheduled to be released after market close on Tuesday, November 9th. Thank you again, and this concludes today's call. Thank you, Mr. Anderson. 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.