Release Date: February 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Definity Financial Corp (DFYFF, Financial) reported record full-year operating earnings per share of $2.66, marking a nearly 25% increase over 2023.
- The company achieved top-line growth of 11.1% and a full-year combined ratio of 94.5%, demonstrating strong operational performance.
- Definity Financial Corp (DFYFF) successfully increased its book value per share by 17.6% in 2024, driven by strong operating performance and the return of restricted cash.
- The company has grown its premiums by $1.2 billion since its IPO, improving its market position from number 8 to number 6 in the industry.
- Definity Financial Corp (DFYFF) has distributed $200 million in shareholder dividends since its IPO, with a recent increase of more than 17%.
Negative Points
- The exit of Sonnet's Alberta personal auto business negatively impacted reported growth by 4.1 points in the fourth quarter.
- The company faced significant catastrophe losses in 2024, which impacted profitability despite strong operational performance.
- There is increased competition in some commercial segments, which may affect future growth and profitability.
- The reinsurance program changes, including higher attachment points, could potentially lead to higher catastrophe losses under the 2025 program.
- The company has not yet achieved significant growth through acquisitions of insurance carriers, which was a key objective post-demutualization.
Q & A Highlights
Q: Can you explain the seasonality and expenses affecting distribution income, which seemed lower this quarter?
A: Philip Mather, CFO, explained that there is some seasonality in Q4, though not as pronounced as in Q1. Expenses were slightly higher due to timing of recognition throughout the year, causing some noise in the quarter. Overall, distribution income was in line with expectations for the year. Rowan Saunders, CEO, added that they are pleased with the investment in their broker platform, expecting a 15% increase in distribution income next year.
Q: How would 2024 catastrophe losses compare under the 2025 reinsurance program?
A: Philip Mather noted that the main difference would be the utilization of the aggregate cover in 2024, which provided a $25 million recovery. However, the attachment points weren't breached due to effective catastrophe management. The absence of the aggregate cover in 2025 would slightly increase catastrophe losses, but the premium cost associated with it would also be absent.
Q: Why didn't you raise the catastrophe loss guidance above 4.5% of premiums, given the increasing frequency and severity of losses?
A: Rowan Saunders stated that 2024 was a historic year for catastrophe losses, and they don't expect this to be the new normal. Definity outperformed its natural market share in catastrophe exposure, and ongoing actions are in place to manage risks. Paul Macdonald added that they have taken steps to address concentration and peril risks, positioning them well to support their catastrophe loadings for next year.
Q: Is Definity shifting its M&A focus from broker acquisitions to insurance carrier acquisitions?
A: Rowan Saunders explained that while they initially focused on acquiring large anchor brokers, they are now doing more smaller transactions. They remain open to larger broker transactions but are also considering carrier acquisitions. The focus is on deploying excess capital into synergistic opportunities, including carriers, as size and scale become increasingly important.
Q: With the demutualization protection period ending soon, is there anything in governance agreements that could affect a potential bid for Definity?
A: Rowan Saunders emphasized that the focus is on building value and that cornerstone investors are supportive of long-term plans. While speculation about potential bids could be distracting, any steps in that direction are not legally permitted until the protection period ends. The company is focused on outperforming the industry and creating significant value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
