* Operating income beats analysts’ estimate
* Shares rise as much as 5 pct
* Insurer to raise rates to reflect cost of catastrophes (Recasts with details from interview with CEO)
By Cameron French
TORONTO, July 31 (Reuters) - Canadian insurer Intact Financial Corp reported a stronger-than-expected profit on Wednesday, driving its shares as much as 5 percent higher, while its CEO said home insurance rates would have to rise after a series of costly disasters.
Intact’s net profit in the second quarter was cut by a C$105 million ($102 million) charge due to floods that hit Alberta in June. The company has warned that a flood in Toronto and a deadly train derailment in Quebec earlier this month would carve an additional C$134 million from profit in the third quarter.
“We’re seeing catastrophes come in different forms, in greater quantity, in greater intensity across the nation,” Intact Chief Executive Charles Brindamour told Reuters in an interview.
The Alberta flood last month shut down the oil industry capital of Calgary, displacing more than 100,000 people and cutting off power for days.
In Toronto, a severe rainstorm in early July caused flooding, power cuts and transit chaos across the city.
In Lac-Mégantic, Quebec, 47 people were killed when a runaway train hauling 72 oil tanker cars derailed and exploded in the heart of the small town.
Brindamour said the company was targeting a 10 percent reduction in its combined ratio - a measure of a company’s claims versus its premiums - and would accomplish this by advising clients on how to reduce risks from floods and other disasters, while pushing rates higher.
“Clearly, rates going forward will have to take into account the fact that these extreme weather events are happening at a pace that is greater than what we anticipated in the past few years,” he said.
Overall, Intact’s combined ratio was 97.5 percent during the quarter, down from 92.3 percent in the year-before period. A ratio below 100 percent means the company is taking in more from premiums that it is paying out in claims and expenses.
Other insurers have also announced losses resulting from recent disasters.
On Tuesday, Toronto-Dominion Bank said it would take C$125 million in claims losses from the Alberta and Toronto floods, and would also take a C$93 million loan-loss provision on its real estate secured lending portfolio due to the floods.
Last week, Co-operators General Insurance said it took a C$77 million hit from the Alberta flooding.
Brindamour said the insurance industry must work more closely with the federal and provincial governments to coordinate a better approach to dealing with catastrophes, but he stopped short of calling for a government-run flood insurance plan.
Net profit fell 20 percent in the second quarter to C$103 million, or 73 Canadian cents per share, from C$129 million, or 95 Canadian cents per share, a year earlier.
On an operating basis, Intact earned 89 Canadian cents a share, well ahead of the profit of 73 Canadian cents expected by analysts surveyed by Thomson Reuters I/B/E/S.
Operating return on equity for the past 12 months was 14.4 percent, down from 17.3 percent.
National Bank Financial analyst Shubha Khan said in a note that the profit beat was due in part to lower than expected expenses as well as a smaller than expected impact from catastrophic events excluding the Alberta floods.
“We believe the strong result this quarter confirms our view that (Intact) is capable of generating core operating ROE of 17-18 pct, and that the shares will ultimately re-rate to reflect the underlying earnings power of the business,” he said.
Direct premiums written rose 10 percent to C$2.2 billion, boosted by the acquisition last year of recreational vehicle insurer Jevco, one of a series of acquisitions Intact has made in recent years.
Brindamour said the integration of the Jevco assets was going well and he said the company is still on the lookout for more acquisitions, with a goal of increasing its market share in Canada.
“I would say we’re on top of the integration process and I think my teams will be ready to look at other opportunities,” he said.
Underwriting income fell 66 percent to C$42 million due to the flood damage.
The company’s shares jumped to a six-week high of C$61.89 on the Toronto Stock Exchange just after the start of trading on Wednesday. By mid-afternoon, the shares were up C$2.21, or 3.8 percent, at C$60.95.
$1=$1.03 Canadian Editing by Peter Galloway