Intact executives are confident the company is well-positioned to endure a potential trade war with the United States, given their low use of U.S.-sourced materials and supplies in auto and property lines.
Investors asked the company’s executives several questions about Intact’s exposure to U.S. tariffs during a 2024 Q4 earnings call Wednesday.
U.S. President Donald Trump Monday announced a 25% tariff on Canadian steel and aluminum exports to the U.S., starting Mar. 12. Trump officials have since told media the proposed 25% tariff on steel and aluminum would stack on top of an initial 25% across-the-board tariff Trump proposed for Canada during his election campaign. (Energy exports from Canada would face a reduced 10% tariff.)
On Feb. 3, Trump paused implementing his 25% across-the-board tariff for a month after Canada promised to undertake border security measures. Canada has promised to launch counter-tariffs on U.S. goods exported into Canada.
Intact said the risk of a cross-border trade war caused the insurer to review its supply chain in granular detail. In doing so, the company found their exposure to U.S.-supplied auto parts was their greatest risk relative to other business lines, although the overall impact of a trade war on the company’s earnings would be low.
“We’ve studied in-depth the impact that a tariff war would have on us as a firm, and we think we’re in a really, really strong position to navigate the storm, both operationally as well as financially,” Intact Financial Corporation CEO Charles Brindamour said in response to an investor’s question during the earnings call. “We’ve explored a whole range of scenarios, and I think we would do well in in those scenarios.”
Brindamour noted the company can use pricing as a lever to address the impact of tariffs on the auto supply chain.
“Operationally speaking, the thing to watch…is the supply chain in personal automobile, and the impact [of tariffs] on service and inflation, which, as you know, we can price for, because our product is just 12 months duration. So, we can reprice when we want.”
Related: How tariffs may impact insurance for Canadian liquor sellers
But the exposure to tariffs in the auto supply chain isn’t that large to begin with, added IFC chief operating officer Patrick Barbeau.
“There are three main components in our [auto] claims [costs],” Barbeau explained. “The first one is injuries and liabilities, where we shouldn’t see much impact from the tariffs.
“And then you have the labour portion of the repair process. That is also not much impacted by the tariffs.
“And then you have the cars themselves and the car parts, which is where inflation could come from. If I look specifically at auto, more than half of the cost comes from the long tail coverages. And then the labour and parts is another 10%.
“So, what remains, when we look at the cars we insure today, only 38% or so were assembled in the U.S. And then on the parts themselves, less than a third of the parts we use in the repair process cross the U.S.-Canadian border.
“So that’s why, overall, we feel that we can manage, between our close involvement with the supply chain and the capability to price the product, within the same [financial] guidance [to investors] that we shared before.”
Another investor asked about the potential impact of tariffs on property lines as well.
“The impact on property lines — and here not only personal property, but commercial property — would be even less than what we just described on the auto lines,” Barbeau replied. “To give you a feel, two thirds of the cost of property is for labour, liability, and temporary relocations or business interruptions, if you look at the commercial line side.
“So, at least one-third of the overall cost is for materials. And today, it’s only one-fourth of that third we source from the U.S. The rest is sourced and manufactured here in Canada. And we have opportunities to further reduce the usage of U.S.-manufactured goods at On Side and within the supply chain, so even less of a concern there.”
On Side, a property restoration firm, is a subsidiary company of Intact Financial.
Feature image courtesy of iStock.com/ranckreporter
