Intact Financial's Q2 2025 Earnings: A High-ROE, Undervalued Opportunity in a Resilient P&C Insurance Sector

The property and casualty (P&C) insurance sector has long been a haven for investors seeking consistent returns in volatile markets. In Q2 2025, Intact Financial Corporation (IFC.TO) has emerged as a standout performer, leveraging disciplined underwriting, robust capital generation, and a high return on equity (ROE) to outpace both peers and broader industry trends. With a market that remains underappreciative of its long-term outperformance potential, Intact presents a compelling case for immediate investment.

Disciplined Underwriting Fuels Margin Expansion

Intact's Q2 2025 earnings underscore its ability to balance growth with prudence. Operating direct premiums written (DPW) grew by 4%, driven by strong performance in Personal lines and strategic rate actions in a hard market. More impressively, the combined ratio improved to 86.1%, a 1.0-point decline year-over-year, despite elevated catastrophe losses. This resilience reflects Intact's commitment to underwriting discipline, a hallmark of its risk management framework.

The company's underwriting income surged 15% to $784 million, fueled by favorable prior-year development and disciplined pricing. This performance is not accidental but a result of a culture that prioritizes long-term profitability over short-term gains. As CEO Peter Acquaviva noted during the earnings call, “We're not chasing volume—we're optimizing for margin and capital efficiency.”

Capital Generation and ROE: A Magnet for Shareholders

Intact's 16.3% ROE over the past 12 months is a testament to its ability to allocate capital effectively. This metric, significantly higher than the P&C sector's average ROE of ~10%, highlights Intact's edge in deploying capital to generate shareholder value. The company's balance sheet further reinforces this strength, with a total capital margin of $3.1 billion and an adjusted debt-to-total capital ratio of 18.4%.

The recent 12% year-over-year increase in book value per share (BVPS) to $98.67 demonstrates how Intact's capital discipline translates into tangible equity growth. For investors, this means a company that not only survives market cycles but thrives within them, consistently rewarding shareholders through dividends and buybacks.

Valuation Metrics Suggest Undervaluation

Despite its strong fundamentals, Intact's stock appears undervalued relative to both historical averages and industry benchmarks. As of July 30, 2025, the stock trades at a price-to-book (P/B) ratio of 2.79 and a price-to-earnings (P/E) ratio of 19.39. These figures contrast sharply with the P&C sector's average P/B of 1.95 and P/E of 8.99. While the industry's low P/E suggests a bearish outlook, Intact's higher multiples are justified by its superior ROE and consistent capital generation.

The market's underreaction to Intact's outperformance is likely due to short-term volatility in catastrophe losses and interest rate uncertainty. However, these are macro-level challenges that affect the sector broadly, not Intact's operational excellence. The company's ability to maintain a combined ratio below 90% in a high-loss environment positions it to outperform during recovery phases.

Strategic Growth in a Hard Market

Intact's geographic diversification further insulates it from regional risks. In Canada, operating DPW grew 8%, supported by strong Personal lines performance and a 83.8% combined ratio. The UK&I segment, while facing temporary headwinds due to remediation actions, showed resilience with a 3% growth rate excluding strategic exits. Meanwhile, the U.S. business, though flat in DPW, improved its combined ratio to 87.8%, reflecting disciplined underwriting in a competitive market.

Why Invest Now?

Intact's recent dividend increase to $1.33 per share (payable September 29, 2025) underscores its confidence in future cash flows. With a dividend yield of ~1.7%, it offers a compelling income stream for long-term investors. Moreover, the company's $3.1 billion capital margin provides flexibility to pursue strategic acquisitions, return capital to shareholders, or expand its underwriting footprint.

The P&C sector is at an inflection point, with claims costs stabilizing and interest rates expected to trend lower in 2026. Intact's proactive approach to rate adjustments and portfolio optimization positions it to capture market share in a hardening environment. For investors, this represents a rare opportunity to invest in a company with a durable competitive moat and a management team focused on long-term value creation.

Conclusion: A Compelling Long-Term Play

Intact Financial's Q2 2025 results reaffirm its status as a leader in the P&C insurance sector. With a high ROE, disciplined capital allocation, and undervalued stock, the company offers a rare combination of defensive qualities and growth potential. While the market remains fixated on short-term volatility, Intact's fundamentals suggest a path to sustained outperformance. For investors with a 5–10 year horizon, this is a high-conviction opportunity to capitalize on a company that consistently turns risk into reward.

Investment Recommendation: Buy Intact Financial shares at current levels, with a 12-month target price of $330 (15% upside from $305.21). Rebalance the position if the P/B ratio drops below 2.50 or ROE falls below 14%.