Institutional Equity Research

Earnings Update

November 3, 2010 Canadian Property & Casualty Companies

Stock Rating:
Sector Performer Intact Financial Corp.
ROE Expansion Continues, But Priced Into
Sector Weighting: Valuation Multiples
Market Weight
12-18 mo. Price Target $54.50
IFC-TSX (11/3/10) $47.37
Intact reported Q3/10 operating EPS of $0.78, better than our estimate of
Key Indices: Toronto $0.67 and consensus of $0.57. Claims losses were in line with our forecast,
but other operating expenses were lower than forecast. BVPS was $26.70 in
3-5-Yr. EPS Gr. Rate (E) NM Q3, up 5.5% Q/Q. The result was ahead of our $25.64 forecast.
52-week Range $31.28-$47.94
Shares Outstanding 114.4M
Float 114.3M Shrs
We think premium growth may have topped out at 5.4% in Q3 (equal to
Avg. Daily Trading Vol. 300,000 Q2) as rate increases in Ontario auto are moderating. That said, commercial
Market Capitalization $5,417.0M P&C is improving with 1.9% unit growth and 3.8% higher rates in Q3. ROE
Dividend/Div Yield $1.36 / 3.1% is expanding with LTM ROE at 14.1%. We are forecasting 15.6% in 2011.
Fiscal Year Ends December
Book Value $26.70 per Shr
Intact bought back ~1.4MM shares in Q3 at an estimated average price of
2011 ROE (E) 15.6% $44.50. The company has $800MM in excess capital and has only used 58%
LT Debt $500.0M
of its NCIB, leaving plenty of capacity for further buybacks. We expect the
Preferred Nil
company to announce a dividend increase of 5-10% with Q4 results (Feb 9).
Common Equity $3,016.8M
Convertible Available No

We are modestly revising our 2010 & 2011 BVPS and EPS estimates.
Earnings Per Share Prev Current Correspondingly, our PT increases from $53.50 to $54.50. At 1.8x BV and
2009 $2.35A 10.6x 2011E EPS we believe that Intact is fully valued relative to its comps.
2010 $3.41E $3.54E We maintain our SP rating.
2011 $4.30E $4.48E
P/E
2009 20.2x
2010 13.9x 13.4x Stock Price Performance
2011 11.0x 10.6x

Book Value Per Share

2009 $24.88A
2010 $26.07E $27.16E
2011 $28.96E $30.21E
P/BVPS
2009 1.9x
2010 1.8x 1.7x
2011 1.6x 1.6x
Source: Reuters
Company Description All figures in Canadian dollars, unless otherwise stated. 10-105684 © 2010
Intact is the largest P&C underwriter in Canada, with the
majority of revenue coming from personal insurance CIBC World Markets does and seeks to do business with companies covered in
lines. its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report.
www.intactfc.com Investors should consider this report as only a single factor in making their
investment decision.
See "Important Disclosures" section at the end of this report for important
required disclosures, including potential conflicts of interest.
Paul Holden, CFA Kevin Cheng, CFA
See "Price Target Calculation" and "Key Risks to Price Target" sections at the
1 (416) 594-8417 1 (416) 956-6676
Paul.Holden@cibc.ca Kevin.Cheng@cibc.ca end of this report, where applicable.
Find CIBC research on Bloomberg, Reuters, firstcall.com CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 (416) 594-7000
and ResearchCentral.cibcwm.com
ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Intact Financial (IFC - TSX) Sector Performer

Current Price : C$47.37 Paul Holden, CFA (416-594-8417) Paul.holden@cibc.ca
12- To 18- Mth Price Target: C$54.50 Kevin Cheng, CFA (416-956-6676) Kevin.cheng@cibc.ca
All figures in millions except per share data
P / BV Multiples Last Qtr 2010E 2011E Investment Thesis
Intact Financial 1.8x 1.7x 1.6x
Canadian P&C 1.0x 1.0x 1.0x We believe that ROEs for the industry and Intact troughed in 2008. In past cycles it has
U.S. Auto / Personal Lines 1.2x 1.2x 1.1x taken an average of only 2 years for ROEs to go from trough to peak.
U.S. Commercial Lines 0.9x 0.8x 0.8x Points that support a ROE recovery include: 1) premium growth remains solid in
U.S. Total P&C 1.0x 0.9x 0.9x personal lines; 2) Ontario auto reforms are expected to result in lower claims expenses;
and 3) the company's personal property action plan has contributed to a significant
Key Financial Metrics ($ mns) 2008A 2009A 2010E 2011E improvement in the combined ratio.
DPW Growth (Y/Y) 0.9% 3.1% 4.8% 2.5% We expect Intact's ROE to recover to 15.6% in 2011, supporting a P/BV multiple of
Loss Ratio (ex. MYA) 68.2% 69.9% 64.6% 61.1% 1.8x. Given that the company is currently trading at 1.8x BV we believe that the shares
Operating Expense Ratio 9.6% 11.2% 11.6% 11.6% are appropriately valued.
Comm'n and Premium Tax Ratio 19.2% 17.6% 18.6% 18.6% Chart 1: Combined Ratio By Insurance Line
Combined Ratio (ex. MYA) 97.1% 98.7% 94.7% 91.4%
ROE - Operating 12.1% 10.0% 13.7% 15.6% 120%

Reserve Redundancy/(Deficiency) $148.9 $123.7 $103.5 $113.3

110%
Dividends Per Share $1.24 $1.28 $1.36 $1.46
BVPS $21.96 $24.88 $27.16 $30.21
100%
BVPS (ex. AOCI) $25.68 $25.41 $26.63 $29.68
90%
Income Statement ($ mns) 2008A 2009A 2010E 2011E
80%
Net Premiums Earned 4,039.4 4,055.4 4,229.3 4,428.6
Total Underwriting Costs (ex. MYA) 3,922.5 4,001.3 4,007.2 4,045.7 70%
Underwriting Income 116.9 54.1 222.0 383.0 2005 2006 2007 2008 2009 2010E 2011E
Other Income 15.9 12.7 25.5 25.5 Personal Auto Personal Property
Investment Income 328.8 292.7 295.2 300.4 Commercial Auto Commercial Non-auto
Interest Expense 0.0 5.6 28.3 29.5
EBT 123.7 139.7 514.8 679.3
Tax Expense (Recovery) (4.6) 11.1 103.1 169.8 Chart 2: IFC P/BV Premium (Discount) To US Personal Lines

Net Operating Income 360.7 281.6 408.8 509.5 IFC P/BV Vs. US Personal Line Insurers
1.0
Operating EPS 2.96 2.35 3.54 4.48
Premium

0.8
GAAP EPS 1.05 1.07 3.56 4.48
0.6 Av erage Plus One ST. Dev .
0.4
Investment Performance 2008A 2009A 2010E 2011E
0.2
Ending Assets 6,108.9 8,088.9 8,623.1 8,923.5 Av erage
0.0
Discount

Dividend and Interest Income 328.8 292.7 295.2 300.4 Spread

-0.2 Av erage Less One ST. Dev .
Average Income Yield 4.9% 4.1% 3.6% 3.4% -0.4
Capital Gains/(Losses) (288.0) (172.5) 65.0 0.0 -0.6
Average Investment Yield 0.7% 1.7% 4.3% 3.4%
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Source: Company reports and CIBC World Markets Inc.

2
ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Q3 Highlights And Variance Analysis

• Intact (IFC-SP) reported Q3/10 operating EPS of $0.78, better than our
estimate of $0.67 and consensus of $0.57. Operating EPS was $0.18 in
Q3/09. Claims losses were greater than normal due to a hailstorm in
Alberta and increased claims leading up to the Ontario auto insurance
reforms effective September 1. However, these items were well
communicated by the company and claims losses were in line with our
forecast. The variance to our estimate was largely attributable to other
underwriting expenses, which were lower than expected.

• BVPS at the end of Q3 was $26.70, up a solid 5.5% Q/Q with the help of
strong capital appreciation in the investment portfolio.

• The company bought back approximately 1.4 million shares in Q3, at an

average price of ~$44.50. Since launching its NCIB, Intact has
repurchased 7.0 million shares (58.7% of the approved amount) at an
average price of $43.65, as of Nov 2, 2010.

• Direct premiums written (DPW) were $1,205.8 million versus our

estimate of $1,188.2 million and were up 5.4% Y/Y. This is the first
quarter since Q4/08 where DPW growth has not accelerated (see Exhibit
2 on page 4).

• The combined ratio was 96.6% compared to our 97.9% forecast and
105.2% in Q3/09.

• The annualized operating ROE was 12.0% versus our 10.5% estimate
and up significantly from 3.0% in Q3/09. LTM ROE was 14.1%, and has
expanded for four consecutive quarters.

Exhibit 1. Variance Analysis ($mlns., except per share)

Actual Actual Y/Y
Q3/10 Q3/09 Change CIBC Est Variance
Direct Premiums Written (DPW) 1,205.8 1,144.1 5.4% 1,188.2 17.6
Net Premiums Earned 1,066.5 1,019.0 4.7% 1,082.3 (15.9)

Losses on Claims (ex. MYA) (723.1) (790.3) -8.5% (724.8) 1.7

Other Underwriting Expenses (306.7) (282.0) 8.7% (334.3) 27.6
Underwriting Income 36.7 (53.3) -168.8% 23.2 13.5
Dividend and Interest Income 73.1 72.9 0.3% 76.2 (3.1)
Other Income 7.3 4.7 55.3% 4.7 2.6
Interest Expense (7.4) (1.1) na (7.4) 0.0
EBT 109.7 23.2 373.3% 96.7 13.0
Income Taxes (20.7) (1.6) 1197.2% (20.3) (0.4)
Net Operating Income 89.0 21.6 312.4% 76.4 12.6
Operating EPS 0.78 0.18 335.0% 0.67 0.11
Book Value 26.70 24.13 10.7% 25.64 1.06

Key Ratios
Loss ratio (ex. MYA) 67.8% 77.6% -9.75 pts 67.0% 0.84 pts
Combined ratio (ex. MYA) 96.6% 105.2% -8.67 pts 97.9% -1.29 pts
Annualized ROE - Operating 12.0% 3.0% 9.01 pts 10.5% 1.55 pts
Source: Company reports and CIBC World Markets Inc.

3
ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Direct Premium Growth

The growth in direct premiums written in Q3/10 was 5.4% Y/Y, consistent with
Q2/10. Prior to Q3/10, growth had accelerated for six consecutive quarters as
shown in Exhibit 2. Given more recent rate approvals in Alberta and Ontario,
which call for lower rates, we expect decelerating premium growth in the coming
quarters. We estimate 2011 DPW of $4,588.3 million (+2.5% y/y).

Exhibit 2. Direct Premiums Written

6%

5% 5.4% 5.4%
5.2%
4% 4.5%
4.0%
3%
2.8%
1.8%
2%
0.9%
1% 1.0%
1.0%
0%
Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10

Source: Company reports and CIBC World Markets Inc.

Revising Estimates
We are increasing our 2010 and 2011 EPS estimates to account for marginally
higher premiums earned and slightly lower underwriting expenses (excluding
claims losses). Our 2010 EPS estimate increases from $3.41 to $3.54, while our
2011 EPS estimate edges higher from $4.30 to $4.48. We are also updating our
book value per share estimates (BVPS) to account for the stronger Q3 result.
Our BVPS estimates for 2010 and 2011, increase from $26.07 and $28.96 to
$27.16 and $30.21, respectively. A summary financial provided is provided in
Exhibit 4 on page 7.

Price Target Calculation

We increase our price target from $53.50 to $54.50 based on our new 2011
book value estimate. Our price target is calculated using a multiple of
approximately 1.8x our 2011E book value per share. Historically, Intact has
traded at an average multiple of 1.8x P/BV with an average ROE of 15%, as
shown in Exhibit 3. We are forecasting a 2011 ROE of 15.6%. We believe that
Intact should trade in line with its historical average as operating ROE recovers
to its historical average. U.S. auto/personal line insurers excluding Progressive
(PGR-NYSE) are currently trading at 0.9x P/BV and Progressive at 2.1x (a
relative valuation table is provided in Exhibit 5 on pg 8).

4
ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Exhibit 3. Historical P/BV

3.0

2.5 Av erage Plus One ST. Dev .

Av erage
2.0

1.5

Av erage Less One ST. Dev .

1.0

0.5
Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

Source: Company reports, Bloomberg and CIBC World Markets Inc.

Key Risks To Price Target

Key risks to our estimates and price target include the following factors:

Adverse Reserve Development: Although Intact has historically experienced

reserve redundancies, there is a possibility that current reserves may not be
adequate to cover future claims. If the company were to incur material reserve
deficiencies, then earnings, book value and valuation multiples would all likely
be negatively impacted.

Regulatory Changes: Intact underwrites a significant portion of its premiums

in the regulated auto sector. Regulatory and/or court decisions could change the
rules surrounding the provision of mandatory insurance, negatively impacting
industry profitability.

Irrational Competitors: Some competitors may price policies with the

objective of growing premiums written rather than maximizing underwriting
profitability. This type of pricing strategy can negatively impact Intact’s ability to
optimally price policies in certain market segments, resulting in lower premium
growth and underwriting profitability.

Catastrophe Losses: Intact uses reinsurance to protect itself against major

catastrophic events, but is exposed to losses depending on amounts claimed.
Coverage is for losses greater than $25 million and up to $1,250 million. An
extreme event that resulted in over $1,250 million in claims against Intact could
result in a material hit to earnings and book value.

Investment Returns: The company has a sizeable investment portfolio with

over $8 billion in assets. Material deviations in the value of the investments held
in the portfolio could be detrimental to the company’s book value and MCT.
Intact has taken several steps to de-risk its investment portfolio, leaving it with
only 11% net exposure to common equity markets and very little exposure to
U.S. securities. Additionally, the company’s investment portfolio is concentrated
in interest rate sensitive securities, the performance of which will be impacted
by future changes in interest rates.

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Key Management Changes: We believe that current management has played

a significant role in the company’s past success. A loss in key management could
alter the company’s ability to replicate past success.

Refer To Our Summary Financial Model On The Following Page

6
7

ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010
Exhibit 4. Summary Financial Model
(in Millions of Dollars) 2002 2003 2004 2005 2006 2007 2008 2009 Q1/10 Q2/10 Q3/10 Q4/10E 2010E Q1/11E Q2/11E Q3/11E Q4/11E 2011E
Direct Premiums Written (DPW) 3107.0 3443.8 3501.4 3905.9 3993.6 4108.6 4145.5 4275.0 914.4 1317.8 1205.8 1040.2 4478.2 935.8 1350.4 1236.0 1066.2 4588.3
Net Premiums Written (NPW) 2593.1 2966.6 3609.0 3754.9 3895.5 4002.4 4047.1 4164.6 889.0 1291.3 1165.9 1012.0 4358.2 909.1 1322.8 1205.5 1039.6 4477.0
Net Premiums Earned 2337.1 2760.9 3364.6 3840.2 3826.6 3932.0 4039.4 4055.4 1018.7 1054.6 1066.5 1089.5 4229.3 1094.6 1102.4 1112.4 1119.3 4428.6
Total Premium Revenues 2337.1 2760.9 3364.6 3840.2 3826.6 3932.0 4039.4 4055.4 1018.7 1054.6 1066.5 1089.5 4229.3 1094.6 1102.4 1112.4 1119.3 4428.6
Underwriting
Losses on Claims (1725.6) (1880.8) (1905.5) (2161.8) (2261.2) (2584.2) (2806.3) (2877.2) (632.5) (691.6) (760.7) (710.6) (2795.4) (672.8) (655.0) (685.4) (694.0) (2707.2)
Commissions - net (83.9) (510.2) (612.5) (674.2) (674.6) (641.4) (636.2) (573.2) (160.1) (164.4) (150.5) (164.3) (639.4) (172.0) (171.9) (157.0) (168.8) (669.7)
Premium Taxes (266.8) (103.3) (116.8) (133.7) (132.3) (136.9) (140.4) (140.4) (34.4) (36.7) (37.4) (38.1) (146.6) (38.3) (38.6) (38.9) (39.2) (155.0)
General Expenses (437.5) (281.6) (259.7) (332.8) (354.7) (360.6) (389.6) (452.2) (119.4) (126.0) (118.7) (126.4) (490.6) (127.0) (127.9) (129.1) (129.9) (513.8)
Total Underwriting costs (2513.7) (2775.8) (2894.5) (3302.5) (3422.8) (3723.2) (3972.5) (4043.0) (946.5) (1018.6) (1067.3) (1039.5) (4071.9) (1010.1) (993.4) (1010.4) (1031.8) (4045.7)
Underwriting Income / (expense) (176.6) (14.9) 470.0 537.7 403.8 208.9 67.0 12.4 72.2 36.0 (0.9) 50.1 157.4 84.4 109.1 101.9 87.5 383.0
Other Income 35.8 8.4 16.0 30.2 38.7 44.4 15.9 12.7 5.7 15.6 7.3 (3.1) 25.5 5.7 15.6 7.3 (3.1) 25.5
Investment Income
Dividend and Interest Income 183.7 214.0 249.2 307.5 321.3 344.8 328.8 292.7 73.1 75.4 73.1 73.6 295.2 74.1 74.8 75.4 76.1 300.4
Capital Gains / (Loss) 2.5 32.1 132.4 223.5 193.5 73.6 (288.0) (172.5) 5.9 32.7 26.4 0.0 65.0 0.0 0.0 0.0 0.0 0.0
Total Investment Income 186.2 246.1 381.6 531.0 514.8 418.4 40.8 120.2 79.0 108.1 99.5 73.6 360.2 74.1 74.8 75.4 76.1 300.4
Interest Expense (14.2) (12.6) (11.7) (8.0) (5.3) 0.0 0.0 (5.6) (6.0) (7.6) (7.4) (7.4) (28.3) (7.4) (7.4) (7.4) (7.4) (29.5)
EBT 31.2 227.0 855.9 1091.0 952.0 671.6 123.7 139.7 151.0 152.1 98.6 113.2 514.8 156.9 192.1 177.3 153.1 679.3
Income Tax (1.9) (76.5) (231.6) (309.2) (294.0) (163.3) 4.6 (11.1) (31.2) (31.8) (16.3) (23.8) (103.1) (39.2) (48.0) (44.3) (38.3) (169.8)
Net Income 29.3 150.5 624.3 781.8 658.1 508.3 128.3 128.6 119.7 120.2 82.3 89.4 411.7 117.7 144.1 132.9 114.8 509.5

Shares Outstanding NA NA 96.1 133.7 133.7 126.7 122.0 119.9 119.0 115.2 113.7 113.7 115.4 113.7 113.7 113.7 113.7 113.7
Fully diluted EPS NA NA 6.49 5.85 4.92 4.01 1.05 1.07 1.01 1.04 0.72 0.79 3.56 1.04 1.27 1.17 1.01 4.48
Operating EPS NA NA 5.49 4.58 3.97 3.61 2.96 2.35 0.94 1.03 0.78 0.79 3.54 1.04 1.27 1.17 1.01 4.48
Dividends Per Share NA NA NA 0.65 1.00 1.08 1.24 1.28 0.34 0.34 0.34 0.34 1.36 0.37 0.37 0.37 0.37 1.46
Book Value per Share NA NA 15.40 21.63 25.58 25.48 21.96 24.88 25.04 25.32 26.70 27.16 27.16 27.84 28.75 29.56 30.21 30.21
Growth Rate Y/Y NA NA NA 40% 18% 0% -14% 13% 16% 8% 11% 9% 9% 11% 14% 11% 11% 11%

Key Ratios
Loss Ratio (ex. MYA) 73.8% 68.1% 56.6% 56.3% 59.1% 66.2% 68.2% 69.9% 62.4% 62.7% 67.8% 65.2% 64.6% 61.5% 59.4% 61.6% 62.0% 61.1%
Operating Expense Ratio 18.7% 10.2% 7.7% 8.7% 9.3% 9.2% 9.6% 11.2% 11.7% 11.9% 11.1% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6%
Comm'n and Premium Tax Ratio 15.0% 22.2% 21.7% 21.0% 21.1% 19.8% 19.2% 17.6% 19.1% 19.1% 17.6% 18.6% 18.6% 19.2% 19.1% 17.6% 18.6% 18.6%
Combined Ratio 107.6% 100.5% 86.0% 86.0% 89.4% 95.2% 97.1% 98.7% 93.2% 93.7% 96.6% 95.4% 94.7% 92.3% 90.1% 90.8% 92.2% 91.4%
ROE - Operating NA NA NA 24.5% 16.7% 14.2% 12.1% 10.0% 15.1% 16.4% 12.0% 11.7% 13.7% 15.1% 17.9% 16.0% 13.5% 15.6%

Source: Company reports and CIBC World Markets Inc.

8

ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010
Exhibit 5. North American Property And Casualty Insurance Comps
Ticker Price Shares Market Current Dividend BVPS P/BVPS Operating EPS P/E Total Total Debt/
3-Nov O/S Cap Dividend Yield Last qtr 2010E 2011E Last qtr 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E Debt Total Cap.
U.S.
Auto/Personal (US$)
Allstate ALL 29.97 537.0 16,093.9 0.20 2.7% 35.83 39.02 41.24 0.8 0.8 0.7 3.37 3.90 4.30 8.9 7.7 7.0 5,910 26.9%
Infinity IPCC 53.62 13.5 723.7 0.14 1.0% 48.98 51.30 55.05 1.1 1.0 1.0 4.81 4.55 4.11 11.1 11.8 13.0 195 21.2%
Mercury General MCY 43.75 54.8 2,396.5 0.60 5.5% 33.78 33.86 34.30 1.3 1.3 1.3 3.16 2.97 2.96 13.9 14.7 14.8 271 10.2%
Progressiv e PGR 21.52 672.6 14,474.4 0.00 0.0% 10.12 10.51 11.76 2.1 2.0 1.8 1.50 1.55 1.69 14.3 13.9 12.7 2,177 13.1%
State Auto Financial STFC 16.04 39.8 638.4 0.15 3.7% 20.96 21.66 22.11 0.8 0.7 0.7 0.28 1.27 1.35 57.5 12.6 11.9 117 15.5%
Average 2.6% 1.2 1.2 1.1 21.1 12.1 11.9 17.4%

Com mercial (US$)

ACE ACE 60.54 336.5 20,373.2 0.33 2.2% 67.34 73.84 80.98 0.9 0.8 0.7 7.55 7.42 7.40 8.0 8.2 8.2 3,628 15.1%
Chubb CB 58.98 332.0 19,581.8 0.37 2.5% 49.38 57.72 61.18 1.2 1.0 1.0 5.79 5.80 5.79 10.2 10.2 10.2 3,975 16.9%
Cincinnati Financial CINF 29.91 162.0 4,845.4 0.40 5.3% 30.74 30.74 30.84 1.0 1.0 1.0 1.34 1.44 1.48 22.3 20.8 20.2 839 14.8%
CNA Financial CNA 27.80 269.0 7,478.9 0.00 0.0% 40.43 48.06 51.30 0.7 0.6 0.5 3.28 1.61 2.53 8.5 17.2 11.0 2,303 23.5%
Hartford Financial HIG 25.57 383.0 9,793.5 0.05 0.8% 45.80 44.74 48.18 0.6 0.6 0.5 2.49 3.67 4.08 10.3 7.0 6.3 5,839 37.4%
Hanov er THG 45.90 47.5 2,180.3 0.25 2.2% 52.61 54.77 58.29 0.9 0.8 0.8 3.26 2.75 4.13 14.1 16.7 11.1 434 16.6%
Old Republic ORI 13.02 240.7 3,133.7 0.17 5.3% 17.06 17.75 18.81 0.8 0.7 0.7 0.15 1.01 1.39 nm 12.9 9.4 347 10.0%
RLI Corp. RLI 57.79 21.3 1,228.9 0.29 2.0% 43.55 45.45 47.74 1.3 1.3 1.2 4.60 3.86 3.81 12.6 15.0 15.2 100 7.5%
Selectiv e SIGI 17.09 53.2 909.9 0.13 3.0% 20.41 20.58 21.62 0.8 0.8 0.8 1.27 1.53 1.64 13.5 11.2 10.4 275 23.2%
Trav elers TRV 55.91 520.3 29,090.0 0.36 2.6% 59.12 64.41 67.43 0.9 0.9 0.8 6.08 6.02 5.82 9.2 9.3 9.6 6,527 18.3%
W.R. Berkley WRB 27.53 156.6 4,309.9 0.07 1.0% 24.81 28.61 31.55 1.1 1.0 0.9 2.68 2.58 2.63 10.3 10.7 10.5 1,739 28.8%
XL Capital XL 20.51 342.1 7,016.9 0.10 2.0% 27.79 33.14 37.01 0.7 0.6 0.6 2.35 2.35 2.44 8.7 8.7 8.4 2,634 27.3%
Average 2.4% 0.9 0.8 0.8 11.6 12.3 10.9 19.9%

Total U.S. Average 2.5% 1.0 0.9 0.9 14.6 12.3 11.2 19.2%

Canada
EGI Financial Holdings EFH 8.00 12.0 96.0 0.00 0.0% 11.01 11.34 12.30 0.7 0.7 0.7 0.76 0.08 0.69 10.5 106.7 11.7 20 16.9%
Fairfax Financial Holdings (US$) FFH 404.47 19.9 8,059.9 10.00 2.5% 401.32 411.60 443.02 1.0 1.0 0.9 48.97 48.38 31.51 8.3 8.4 12.8 2,128 20.9%
Genw orth Financial MIC 26.75 104.8 2,803.1 0.26 3.9% 24.30 24.83 26.95 1.1 1.1 1.0 2.55 2.97 3.16 10.5 9.0 8.5 272 8.9%
Intact IFC 47.37 119.9 5,680.0 0.34 2.9% 26.70 27.16 30.21 1.8 1.7 1.6 2.35 3.54 4.48 20.2 13.4 10.6 496 8.0%
Kingsw ay (US$) KFS 1.44 51.6 74.3 0.00 0.0% 2.91 2.55 1.62 0.5 0.6 0.9 -4.37 -1.70 -0.95 na na na 330 81.6%
Average 1.8% 1.0 1.0 1.0 12.4 34.3 10.9 27.3%
Source: Company reports, Bloomberg. CIBC World Markets estimates for MIC, IFC. Bloomberg estimates for all other companies
ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Our EPS estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly

2009 Current $0.58A $0.77A $0.18A $0.82A $2.35A
2010 Prior $0.94A $1.03A $0.67E $0.77E $3.41E
2010 Current $0.94A $1.03A $0.78A $0.79E $3.54E
2011 Prior $1.10E $1.29E $1.15E $0.76E $4.30E
2011 Current $1.04E $1.27E $1.17E $1.01E $4.48E

Our BV/share estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly

2009 Current $21.56A $23.36A $24.13A $24.88A $24.88A
2010 Prior $25.04A $25.32A $25.64E $26.07E $26.07E
2010 Current $25.04A $25.32A $26.70A $27.16E $27.16E
2011 Prior $26.82E $27.76E $28.55E $28.96E $28.96E
2011 Current $27.84E $28.75E $29.56E $30.21E $30.21E

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

IMPORTANT DISCLOSURES:
Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or
at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein
accurately reflect such research analyst's personal views about the company and securities that are the subject of this
report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii)
no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed by such research analyst in this report.

Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from
revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking
Department. Research analysts do not receive compensation based upon revenues from specific investment banking
transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household from
executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets
generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that
such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report,
CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities
discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures
set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Intact Financial Corp. (IFC)

2a Intact Financial Corp. is a client for which a CIBC World Markets company has performed investment banking
services in the past 12 months.
2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for Intact Financial Corp.
in the past 12 months.
2e CIBC World Markets Inc. has received compensation for investment banking services from Intact Financial
Corp. in the past 12 months.
2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services
from Intact Financial Corp. in the next 3 months.
3a Intact Financial Corp. is a client for which a CIBC World Markets company has performed non-investment
banking, securities-related services in the past 12 months.
3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services
from Intact Financial Corp. in the past 12 months.
7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1%
or more of a class of equity securities issued by Intact Financial Corp.
14 The equity securities of Intact Financial Corp. are limited voting shares.

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered
by CIBC World Markets Inc.:

Stock Prices as of 11/03/2010:

Genworth MI Canada Inc. (2a, 2c, 2g, 7) (MIC-TSX, $26.75, Sector Outperformer)

Companies Mentioned in this Report that Are Not Covered by CIBC World Markets Inc.:

Stock Prices as of 11/03/2010:

Ace Limited (ACE-NYSE, US$60.55, Not Rated)
Allstate Corporation (ALL-NYSE, US$29.97, Not Rated)
Chubb Corp. (CB-NYSE, US$58.98, Not Rated)
Cincinnati Financial Corp. (CINF-OTC, US$29.91, Not Rated)
CNA Financial (CNA-NYSE, US$27.80, Not Rated)
EGI Financial Holdings Inc. (EFH-TSX, $8.30, Not Rated)
Fairfax Financial Holdings (FFH-TSX, $406.65, Not Rated)
Hanover Insurance Group (THG-NYSE, US$45.90, Not Rated)
Hartford Financial (HIG-NYSE, US$25.57, Not Rated)
Infinity Property & Casualty Corp. (IPCC-OTC, US$53.62, Not Rated)
Kingsway Financial Services Inc. (KFS-TSX, $1.44, Not Rated)
Mercury General (MCY-NYSE, US$43.75, Not Rated)
Old Republic International Corporation (ORI-NYSE, US$13.02, Not Rated)
Progressive Corporation (PGR-NYSE, US$21.52, Not Rated)
RLI Corp (RLI-NYSE, US$57.79, Not Rated)
Selective Insurance Group (SIGI-NASDAQ, US$17.09, Not Rated)
State Auto Financial (STFC-NASDAQ, US$16.04, Not Rated)
Travelers Cos Inc (TRV-NYSE, US$55.91, Not Rated)
W.R. Berkley Corp. (WRB-NYSE, US$27.53, Not Rated)
XL Capital Ltd (XL-NYSE, US$20.51, Not Rated)

Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to
Important Disclosure Footnotes" section of this report.

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Key to Important Disclosure Footnotes:

1 CIBC World Markets Corp. makes a market in the securities of this company.
2a This company is a client for which a CIBC World Markets company has performed investment banking services
in the past 12 months.
2b CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2d CIBC World Markets Corp. has received compensation for investment banking services from this company in
the past 12 months.
2e CIBC World Markets Inc. has received compensation for investment banking services from this company in the
past 12 months.
2f CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
3a This company is a client for which a CIBC World Markets company has performed non-investment banking,
securities-related services in the past 12 months.
3b CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
4a This company is a client for which a CIBC World Markets company has performed non-investment banking,
non-securities-related services in the past 12 months.
4b CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
4c CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
5a The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common
equity securities.
5b A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a
long position in the common equity securities of this company.
6a The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its
common equity securities.
6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this
company has a long position in the common equity securities of this company.
7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1%
or more of a class of equity securities issued by this company.
8 An executive of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has
provided services to this company for remuneration in the past 12 months.
9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company
to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer,
director or advisory board member of this company or one of its subsidiaries.
10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC
World Markets Corp., has a significant credit relationship with this company.
11 The equity securities of this company are restricted voting shares.
12 The equity securities of this company are subordinate voting shares.
13 The equity securities of this company are non-voting shares.
14 The equity securities of this company are limited voting shares.

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

CIBC World Markets Inc. Price Chart

HISTORICAL PERFORMANCE OF CIBC WORLD MARKETS INC. RECOMMENDATIONS FOR INTACT FINANCIAL
CORP. (IFC)
Date Change Type Closing Price Rating Price Target Coverage
06/22/2009 33.50 SP 39.00 Paul Holden, CFA
08/13/2009 35.00 SP 39.75 Paul Holden, CFA
10/02/2009 33.35 SP 38.75 Paul Holden, CFA
02/17/2010 40.39 SP 41.00 Paul Holden, CFA
04/29/2010 43.84 SP 48.25 Paul Holden, CFA
05/06/2010 44.72 SP 53.50 Paul Holden, CFA

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

CIBC World Markets Inc. Stock Rating System

Abbreviation Rating Description
Stock Ratings
SO Sector Outperformer Stock is expected to outperform the sector during the next 12-18 months.
SP Sector Performer Stock is expected to perform in line with the sector during the next 12-18 months.
SU Sector Underperformer Stock is expected to underperform the sector during the next 12-18 months.
NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock.
R Restricted CIBC World Markets is restricted*** from rating the stock.
Sector Weightings**
O Overweight Sector is expected to outperform the broader market averages.
M Market Weight Sector is expected to equal the performance of the broader market averages.
U Underweight Sector is expected to underperform the broader market averages.
NA None Sector rating is not applicable.
**Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada.
"Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues.
***Restricted due to a potential conflict of interest.

Ratings Distribution*: CIBC World Markets Inc. Coverage Universe

(as of 03 Nov 2010) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 141 43.3% Sector Outperformer (Buy) 136 96.5%
Sector Performer (Hold/Neutral) 144 44.2% Sector Performer (Hold/Neutral) 137 95.1%
Sector Underperformer (Sell) 25 7.7% Sector Underperformer (Sell) 22 88.0%
Restricted 15 4.6% Restricted 15 100.0%
Ratings Distribution: Canadian Property & Casualty Companies Coverage Universe
(as of 03 Nov 2010) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 1 50.0% Sector Outperformer (Buy) 1 100.0%
Sector Performer (Hold/Neutral) 1 50.0% Sector Performer (Hold/Neutral) 1 100.0%
Sector Underperformer (Sell) 0 0.0% Sector Underperformer (Sell) 0 0.0%
Restricted 0 0.0% Restricted 0 0.0%
Canadian Property & Casualty Companies Sector includes the following tickers: IFC, MIC.

*Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc.
do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World
Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and
sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting.

Important disclosures required by IIROC Rule 3400, including potential conflicts of interest information, our system for
rating investment opportunities and our dissemination policy can be obtained by visiting CIBC World Markets on the web
at http://researchcentral.cibcwm.com under 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161
Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request.

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ROE Expansion Continues, But Priced Into Valuation Multiples - November 03, 2010

Legal Disclaimer
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Investment Industry Regulatory Organization of Canada (“IIROC”), the Toronto Stock Exchange, the TSX Venture
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This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World
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