Definity Financial Q2 Earnings Call Highlights

Definity Financial (TSE:DFY) said its second-quarter results reflected continued growth, early synergy capture and progress integrating the Travelers business it acquired, as the insurer raised its annual expense-synergy target by 25%.

Gross written premiums increased 34.7% from a year earlier to C$1.8 billion, while operating net income reached C$118 million, or C$0.97 per share. Operating earnings per share rose 15.5% year over year. The consolidated combined ratio was 93.9%, including the acquired business, with a lower ratio indicating better underwriting profitability.

President and CEO Rowan Saunders said the company had reached its objective of becoming one of Canada’s five largest property and casualty insurers and was now focused on building what he called a “Canadian champion.” He said Definity’s longer-term goal is to become a top-three P insurer in Canada.

Travelers Integration and Synergies

Definity said it had converted more than 40,000 acquired policies onto its systems and had not experienced unexpected revenue leakage as policies began renewing during the second quarter. The company unified new-business intake for broker business within one month of closing the acquisition, Saunders said.

The insurer reported C$52 million in run-rate expense synergies six months into the integration, of which C$11 million was reflected in second-quarter underwriting results. Year-to-date realized synergies totaled C$17 million.

As a result, Definity increased its post-integration annual expense-synergy target to C$125 million from C$100 million. Management said it expects roughly one-third of that annual target to be reflected in 2026 results, about half in 2027 and nearly the full amount in 2028, as transition-service agreements with Travelers are wound down.

Chief Financial Officer Philip Mather said about two-thirds of synergies triggered to date stemmed from eliminating parent-company charges and technology savings. The remaining third came from scale efficiencies and attrition management. He said approximately half of the ultimate C$125 million of expense synergies is expected to benefit operating expenses, with the other half supporting the loss ratio through claims-related infrastructure and technology costs.

Saunders said Definity also expects future improvement in non-expense loss-ratio elements as the acquired portfolio moves to its platforms and pricing tools. He said the company expects the Travelers portfolio, which was approximately break-even before the acquisition, to operate with a combined ratio in the low 90s by the end of the integration period.

Premium Growth Across Insurance Lines

Mather said the quarter’s premium growth included 24.5% growth from the acquired renewal book, while underlying growth across Definity’s business exceeded 10%. The company reaffirmed its full-year gross written premium target of more than C$6.5 billion and expects overall growth to remain broadly consistent in the second half.

• Personal auto: Gross written premiums rose 35.1%, including 22.6% growth from the acquired renewal business and 12.5% underlying growth. The combined ratio was 95.1%, compared with 94.2% a year earlier, reflecting the temporary impact of the acquired business before synergies are fully realized.
• Personal property: Premiums increased 37.1%, including 25.5% from acquired-business retention and 11.6% underlying growth. The combined ratio improved to 92.8% from 94.3%, aided by lower catastrophe losses. The first-half combined ratio for the line was in the upper 80s.
• Commercial insurance: Premiums grew 32.2%, including 26.3% from the acquired renewal book. Underlying growth was 5.9%, supported by pricing increases and market-share gains in small business and specialty lines. The commercial combined ratio was 93.1%, up from 89.6% a year earlier, primarily due to acquired-business expenses and modestly higher catastrophe losses.

Management expects commercial premium growth to reach the mid- to upper-30% range in the second half as a larger volume of scheduled acquired-business renewals occurs. Personal property growth is expected to remain in the mid-30% range, while personal auto growth is expected to remain relatively consistent with first-half levels.

Capital, Investments and Distribution

Net investment income increased to C$79.5 million, driven by a larger investment portfolio following the acquisition. Mather said the company remained on track for C$320 million in full-year net investment income, supported by active fixed-income portfolio management and without taking undue risk to pursue higher yields.

Distribution income totaled C$24.5 million, while total broker operating income, including C$11.2 million of intercompany commission income, rose 20.2% to C$35.7 million. Definity said its national broker platform ranked among Canada’s top 10 brokers, with about C$1.6 billion in gross written premiums under management. The company maintained its target of reaching C$2 billion by the end of 2027 and its guidance for 20% annual broker-platform operating-income growth.

The company ended the quarter with more than C$1.2 billion in financial capacity and a debt-to-capital ratio of 26.5%, approaching its long-term 25% target. Saunders said the capital position supports organic growth, broker acquisitions, potential carrier acquisitions and other capital priorities.

Definity reported trailing 12-month operating return on equity of 12.5%, at the high end of its target range. Saunders said the Travelers acquisition is expected to add more than 200 basis points to operating ROE beyond the company’s organic plans, supporting its mid-term goal of sustainable mid-teens operating ROE.

About Definity Financial (TSE:DFY)

Definity Financial Corp is a multi-channel, property, and casualty insurance company. It offers auto, property, liability, and pet insurance products to individual customers.

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