August 12, 2009 / 10:41 AM / in 8 years

UPDATE 2-Intact Financial profit falls on derivative loss

* Q3 oper EPS C$0.77 vs C$0.89 yr-earlier

* Misses analysts’ expectations

* Q3 derivative losses C$36.6 mln

* Shares fall in opening trade (Adds analyst’s comment, details, share price)

By Andrea Hopkins

TORONTO, Aug 12 (Reuters) - Canadian home and auto insurer Intact Financial Corp (IFC.TO) said on Wednesday its profit fell 34 percent in the second quarter as the company recognized a non-cash loss on embedded derivatives.

Operating profit came in lower than expected and shares of Intact, formerly known as ING Canada, fell 0.4 percent in early Toronto trade to C$34.42.

Intact said underwriting income was flat as the number of catastrophe claims fell on both the property and auto side, but that commercial lines deteriorated. Investment income was also lower in the quarter.

While the results came in below market expectations, RBC Dominion Securities analyst Dennis Westfall said the insurer would likely do better in the months ahead as the industry rebounds.

“We would be buyers in spite of the operating miss, as we believe (Intact) will trade longer term on the improving prospects of the industry and on the company’s book value,” Westfall said in a note to clients.

Intact said it had net earnings of C$74.2 million ($67.3 million), or 62 Canadian cents a share, for the quarter ended June 30, down from C$112 million, or 91 Canadian cents a share, a year earlier. Operating income fell 13.5 percent to $92.9 million, or 77 cents per share.

Analysts, on average, had expected earnings of 88 Canadian cents a share, excluding special items, according to Reuters Estimates.

Intact, which rebranded itself after being spun off by its Dutch parent ING Groep NV ING.AS in February, said it took a non-cash loss of C$36.6 million on embedded derivatives due to significant increase in the value of its perpetual preferred shares portfolio.

But it said home and auto insurance premiums are increasing across the industry as a result of cost pressures in auto insurance in Ontario as well as water-related damage in home insurance, and it believes the pricing environment in business insurance will improve within the next year.

“The growth of our direct written premiums is beginning to show positive momentum as industry conditions are pointing to a firmer pricing environment in all lines of business over the next 12 months,” Chief Executive Charles Brindamour said in a statement.

But Intact also noted that the home insurance business, which notched a C$18.2 million underwriting loss in the quarter, an improvement from a year earlier, faced continued headwinds from weather-related claims.

“The industry continues to be susceptible to the volatility in personal property due to unpredictable weather conditions as evidenced by recent events across the country, including rain, hail and forest fires,” the company said.

Analyst Westfall noted the company’s financial flexibility remains strong, with a minimum capital test ratio of 211, zero debt and excess capital of about C$466 million. ($1=$1.10 Canadian) (Additional reporting by Anurag Kotoky in Bangalore; editing by Peter Galloway)

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