Release Date: May 09, 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 a strong start to 2025 with an operating net income of $75.9 million, or $0.65 per share.
- The company achieved a 9.6% increase in premiums in the first quarter, driven by firm market conditions in personal and commercial insurance.
- The combined ratio was 94.5%, indicating effective management of underwriting and expense efficiencies despite challenging winter conditions.
- Book value per share increased by 16.2% year-over-year, reflecting strong shareholder value creation.
- The company's broker platform is expected to manage at least $1.5 billion in premiums by the end of 2026, ahead of initial expectations.
Negative Points
- Higher catastrophe losses due to active winter weather impacted the core accident year experience.
- The commercial insurance market is becoming more competitive in certain segments, potentially affecting future growth.
- The company faces ongoing cost pressures and regulatory constraints, particularly in the auto insurance sector in Alberta.
- Net investment income is expected to remain largely unchanged from 2024 due to lower market yields.
- The potential impact of U.S. tariffs and retaliatory actions introduces uncertainty into the operating environment.
Q & A Highlights
Q: Can you provide an update on rate approvals in Ontario for auto insurance, particularly for Sonnet and Definity products? Also, was Sonnet profitable in the first quarter?
A: Paul Macdonald, EVP of Personal Insurance and Digital Channels, stated that they received approval for a 5% rate increase in Ontario for both the economical and Sonnet portfolios, effective in May. Sonnet's auto portfolio was profitable in Q1, despite challenging weather conditions, and this represents about 75% of the Sonnet portfolio. The company is optimistic about maintaining profitability for the rest of the year.
Q: What is the outlook for the broker platform and acquisitions? How does this relate to the 15% growth guidance in distribution income?
A: Rowan Saunders, President and CEO, explained that the broker distribution platform is performing well, with significant interest and a strong pipeline. The platform is expected to grow organically at an upper single-digit rate, with additional growth from programmatic acquisitions. The company is confident in achieving the 15% growth guidance for distribution income, with Q1 growth already exceeding this target.
Q: Can you elaborate on the commercial lines pricing environment and any competitive pressures?
A: Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations, noted that while the market is becoming more competitive, Definity's commercial portfolio is well-positioned, particularly in the small business segment. The company achieved a 10% growth rate in Q1, with more than half of this growth driven by rate and inflation adjustments. The focus remains on maintaining a low 90s combined ratio and growing at twice the industry rate.
Q: What is the potential impact of tariffs on loss cost inflation across your lines of business?
A: Rowan Saunders stated that the impact of tariffs is manageable for Definity and the P&C industry. Approximately 6% of the company's loss cost base is exposed to tariffs, primarily affecting the auto line. The company believes the impact is not material to their portfolio.
Q: What is the current status of auto rate increases in terms of written and earned premiums?
A: Paul Macdonald mentioned that the company has a double-digit rate increase flowing through the system, with an additional 5% rate increase in Ontario starting in May. The overall portfolio is expected to have high single to low double-digit written and earned rate increases, which should cover current trends and any potential tariff impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
