Intact Financial Corporation reports second quarter results



    
    -  Sound underwriting performance
    -  Direct written premiums increased 2.8% with industry conditions
       pointing to firmer pricing environment
    -  Strong financial position, increase in excess capital to $466 million,
       no debt
    

    TORONTO, Aug. 12 /CNW/ - Intact Financial Corporation (TSX: IFC) today
reported net operating income for the quarter ended June 30, 2009 of $92.9
million, or $0.77 per share, down 13.5% on a per share basis from the same
quarter of last year as the strength of its underwriting performance was
offset by lower investment income. Direct written premiums climbed 2.8% to
$1,250.6 million while the combined ratio remained relatively unchanged at
95.7%.
    Net income for the quarter was $74.2 million, or $0.62 per share, down
from $112.0 million, or $0.91 per share, for the same period last year. The
decline reflects a non-cash $36.6 million loss on embedded derivatives that
was recognized as the result of a significant increase in the value of the
company's perpetual preferred shares portfolio.

    CEO's Comments

    "Our operating performance remained sound this quarter as a result of a
decrease in the number of severe storms and the positive impact of our home
insurance plan. Auto insurance also performed well. Overall, our underwriting
income increased by more than 15% in the first six months of the year as
improved personal insurance results were partly offset by lower commercial
underwriting income." said Charles Brindamour, President & CEO.
    "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."
    "Our excess capital position, which reached nearly $470 million,
continued to improve during the quarter. The recent rebound in equity markets
also led to a substantial improvement in the value of our investment
portfolio," said Mr. Brindamour.

    Dividend

    The Board of Directors of Intact Financial Corporation declared a
quarterly dividend of 32 cents per share on its outstanding common shares. The
dividend will be payable on September 30, 2009 to shareholders of record on
September 14, 2009.

    Current Outlook

    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
damages in home insurance. In business insurance, current market indications
suggest that the pricing environment will begin to firm up over the next 12
months.

    
    Consolidated Highlights

    -------------------------------------------------------------------------
    In millions
     of dollars,
     except as
     otherwise                                       YTD       YTD
     noted         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Direct
     premiums
     written       1,250.6   1,216.7      2.8%   2,119.4   2,077.0      2.0%
    -------------------------------------------------------------------------
    Underwriting
     income(1)        43.2      43.4    (0.5)%      51.1      44.2     15.6%
    -------------------------------------------------------------------------
    Net operating
     income(2)        92.9     109.5   (15.2)%     161.9     179.6    (9.9)%
    -------------------------------------------------------------------------
    Net income        74.2     112.0   (33.8)%      37.9     135.0   (71.9)%
    -------------------------------------------------------------------------
    Net operating
     income per
     share
     (dollars)        0.77      0.89   (13.5)%      1.35      1.45    (6.9)%
    -------------------------------------------------------------------------
    Earnings per
     share (EPS)
      Basic and
      diluted
      (dollars)       0.62      0.91   (31.9)%      0.32      1.09   (70.6)%
    -------------------------------------------------------------------------
    Return on
     equity (ROE)
     for the last
     12 months        1.1%     10.3% (9.2) pts
    -------------------------------------------------------------------------
    Combined ratio   95.7%     95.6%   0.1 pts     97.4%     97.8% (0.4) pts
    -------------------------------------------------------------------------
    (1) Underwriting income is defined as underwriting income excluding
        market yield adjustment (MYA).
    (2) Net operating income is defined as the sum of underwriting income,
        interest and dividend income and corporate income after tax.



    Operating Highlights

    -  Net operating income for the quarter amounted to $92.9 million and
       decreased 13.5% on a per share basis. Net operating income for the
       first six months was $161.9 million, down 6.9% on a per share basis.
       The healthy underwriting performance during the quarter and the last
       six months was offset by lower dividend and interest income,
       reflecting the shift to a more conservative asset mix.

    -  Direct premiums written increased 2.8% in the second quarter to
       $1,250.6 million, the largest quarterly increase in nearly two years,
       as premiums continued to move upwards in personal insurance. For the
       first six months, direct premiums written increased 2.0% to
       $2,119.4 million.

    -  Underwriting income was healthy in the second quarter, reaching
       $43.2 million with a combined ratio of 95.7%, relatively unchanged
       from the second quarter in 2008.

       The home insurance business improved by $27.5 million during the
       quarter as the underwriting loss decreased to $18.2 million with a
       combined ratio of 107.9%. The 13 percentage point improvement in the
       combined ratio is due to the decrease in severe storms and the
       positive impact of the action plan launched last year. 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.

       Personal auto insurance performance continued to be solid with a
       combined ratio of 89.6% at $53.6 million, down $1.5 million from the
       same quarter of last year.

       The performance of the commercial insurance portfolio deteriorated
       with a combined ratio of 97.0%. Commercial auto business underwriting
       income was up $10.0 million to $20.4 million, and continued to deliver
       strong performance with a solid combined ratio of 73.9%. This was
       offset by significantly lower underwriting results in commercial
       non-auto due to unfavourable prior year claims development and higher
       claims severity, leading to a combined ratio of 106.7%.

       Overall in the first half of the year, underwriting income increased
       15.6% to $51.1 million. The improvement was driven by an overall
       reduction in claims resulting from severe weather conditions and more
       favourable prior year claims development in personal lines, partly
       offset by lower underwriting income in commercial lines in the second
       quarter.

    -  Interest and dividend income, net of expenses, declined in the second
       quarter by $9.1 million over the same period last year to
       $72.6 million and by $22.1 million year to date to $145.1 million. The
       market yield of the investment portfolio remains robust at 4.4%, down
       0.5 percentage points from the end of the second quarter of 2008.
    

    Investments

    The significant improvement in capital markets substantially increased
the overall market value of the company's invested assets. As the preferred
share portfolio increased in value by $218.6 million, the company recognized a
non-cash $36.6 million loss on the embedded derivatives of its perpetual
preferred shares. Overall, the losses on investments during the quarter were
$35.1 million up 22.3% from the same quarter of last year.

    Capital and Cash Management

    The company's financial position remains strong at the end of the second
quarter, with $466.0 million in excess capital, no debt and a minimum capital
test of 211.1%, 2.9 percentage points higher than at the end of the first
quarter of 2009.

    Analyst Estimates

    The average estimate of earnings per share and net operating income per
share for the second quarter among the analysts who follow the company were 
$0.81 and $0.88 respectively.

    Conference Call

    Intact Financial Corporation will host a conference call to review its
earnings results later this morning at 10:00 a.m. ET. To listen to the call
via live audio webcast and to view the presentation slides, the statistical
supplement and other information not included in this press release, visit our
website at www.intactfc.com and link to "Investor Relations."
    The conference call is also available by dialling (416) 644-3414 or +1
(800) 733-7571 (toll-free in North America). Please call in ten minutes prior
to the start.
    A replay of the call will be available at 12:00 p.m. ET today through
11:59 p.m. ET on Wednesday, August 19th. To listen to the replay, call (416)
640-1917 or +1 (877) 289-8525 (toll-free in North America). The pass code is
21310224 followed by the number sign. A transcript of the call will also be
available on the website.

    About Intact Financial Corporation

    Intact Financial Corporation is the largest provider of property and
casualty insurance in the country with over $4 billion in premiums. Its 7,000
employees offer home, auto and business insurance under the Intact Insurance,
Novex Group Insurance, belairdirect and Grey Power brands.


    
                                  Intact Financial Corporation
                                  Management's Discussion and Analysis
                                  ------------------------------------------
                                  For the second quarter ended June 30, 2009


    Table of contents

    Section 1 - Intact Financial Corporation...............................4
    Section 2 - Canadian property and casualty insurance
                industry 12-month outlook..................................5
    Section 3 - Overview of consolidated performance.......................6
    Section 4 - Personal lines............................................19
    Section 5 - Commerical lines..........................................22
    Section 6 - Corporate and distribution................................24
    Section 7 - Financial condition.......................................25
    Section 8 - Accounting and disclosure matters.........................31
    Section 9 - Risk management...........................................35
    Section 10 - Other matters............................................35
    


    August 11, 2009

    The following Management's Discussion and Analysis ("MD&A"), which was
approved by the Board of Directors for the quarter ended June 30, 2009, is
intended to enable the reader to assess the company's results of operations
and financial conditions for the three- and six-month periods ended June 30,
2009, compared to the corresponding periods in 2008. It should be read in
conjunction with the company's Unaudited Interim Consolidated Financial
Statements and accompanying notes, as well as the MD&A and the Audited
Consolidated Financial Statements in the company's 2008 Annual Report.
    The company uses both generally accepted accounting principles ("GAAP")
and certain non-GAAP measures to assess performance. Non-GAAP measures do not
have any standardized meaning prescribed by GAAP and are unlikely to be
comparable to any similar measures presented by other companies. The
management of Intact Financial Corporation analyzes performance based on
underwriting ratios such as combined, general expenses and claims ratios as
well as other performance measures including and excluding the market yield
adjustment ("MYA") to claims liabilities. These measures are defined in the
company's glossary which is posted on the Intact Financial Corporation web
site at www.intactfc.com. Click on "Investor Relations" and "Glossary" on the
left navigation bar.

    Forward-looking statements

    This document contains forward looking statements that involve risks and
uncertainties. The company's actual results could differ materially from these
forward looking statements as a result of various factors, including those
discussed hereinafter or in the company's 2008 Annual Information Form. Please
read the cautionary note in section 10.2 of this document.

    Certain totals, subtotals and percentages may not agree due to rounding.
Additional information about Intact Financial Corporation, including the
Annual Information Form, may be found online on SEDAR at www.sedar.com. A
change column has been provided for convenience showing the variation between
the current period and the prior period. Not applicable (n/a) is used to
indicate that the current and prior year figures are not comparable, not
meaningful, or if the percentage change exceeds 1,000%.

    
    Notes:

    -  All references to direct premiums written in this MD&A exclude pools,
       unless otherwise noted.
    -  "Intact", "the company", "IFC" and "we" are terms used throughout the
       document to refer to Intact Financial Corporation and its
       subsidiaries.


    Section 1 - Intact Financial Corporation

    1.1   Overview of the business

    IFC is the largest provider of automobile, home and business insurance in
Canada insuring approximately four million individuals and businesses across
Canada. Overall, the company has an approximate 11% market share and is the
leading private sector property and casualty ("P&C") insurer in Ontario,
Quebec, Alberta and Nova Scotia. IFC distributes insurance through brokers
under Intact Insurance and Grey Power, and direct-to-consumers through
belairdirect. As at June 30, 2009, IFC and its insurance subsidiaries had a
$7.0 billion portfolio of cash and invested assets, managed by the company's
investment management subsidiary.

    Section 2 - Canadian property and casualty insurance industry 12-month
                outlook

    -------------------------------------------------------------------------
                   P&C insurance industry        IFC's response
    -------------------------------------------------------------------------
    Pricing      - Personal auto premiums      - Maintaining pricing
     and claims    are increasing reflecting     discipline and commitment
     environment   medical cost inflation        to adequate margins:
     (12-month     in Ontario, which is          - IFC's personal auto rates
     outlook)      currently being addressed       in Ontario have increased
                   under the five-year review      17.2% since the fall of
                   of the Insurance Act            2007 to address cost
                 - Personal property premiums      pressures
                   are rising due to             - IFC has been increasing
                   increases in water-related      personal property
                   losses. The industry            premiums to more closely
                   continues to be                 match claims experience
                   susceptible to volatility   - Implementing home insurance
                   in personal property due      action plan to adapt to
                   to unpredictable weather      increases in water-related
                   conditions.                   losses aiming at a 10-15%
                 - Signs have emerged that       improvement in the combined
                   the commercial market is      ratio:
                   firming up in Ontario and     - Rate adjustments and
                   will likely firm up in          enhanced segmentation
                   other provinces across        - Greater efficiency in
                   Canada                          claims management
                                                 - Redesign of the product
                                                   offering (see section 4.2
                                                   in IFC's first quarter
                                                   report)
                                               - IFC is well positioned to
                                                 take advantage of organic
                                                 growth opportunities as the
                                                 commercial market begins to
                                                 firm up due to the
                                                 company's discipline,
                                                 pricing sophistication and
                                                 capacity for growth
                                               - IFC is pursuing both
                                                 organic and acquisition
                                                 growth strategies with a
                                                 prudent and disciplined
                                                 approach
    -------------------------------------------------------------------------
    Capital      - Prolonged capital market    - Strong financial position
     Markets       weakness over the last        with $466.0(1) million in
                   year has resulted in          excess capital and no debt
                   investment losses, higher   - MCT ratio of 211.1%; up
                   borrowing costs and           2.9 percentage points from
                   diminished excess capital     the first quarter of 2009
                   levels across the           - $7.0 billion cash and
                   industry                      investment portfolio is
                 - Pressure on industry          largely Canadian with
                   capital will likely           minimal US exposure and no
                   continue over the next        leveraged investments
                   year                        - Over the last nine months,
                 - Lower industry capital        strategic changes in IFC's
                   levels and investment         asset mix have lowered the
                   yields could influence        company's MCT sensitivity
                   higher premiums across      - Despite the shift to a more
                   the industry                  conservative asset mix, the
                                                 market yield of the
                                                 investment portfolio remains
                                                 robust at 4.4%, only
                                                 0.5 percentage points lower
                                                 than at the end of the
                                                 second quarter of 2008
                                               - Lower excess capital levels
                                                 in the industry could create
                                                 opportunities for IFC to
                                                 participate in consolidation
                                                 opportunities in the
                                                 Canadian market
    -------------------------------------------------------------------------
    (1) Assumes a Minimum Capital Test ("MCT") of 170%


    Section 3 - Overview of consolidated performance

    Second quarter highlights

    -  Healthy combined ratio of 95.7% reflects an improvement in personal
       property results offset by lower commercial underwriting income
    -  Direct written premium growth increased to 2.8% as industry conditions
       point to firmer pricing over the next 12 months
    -  Lower net income reflects non-cash loss on embedded derivatives as
       preferred share market values rebounded
    -  Excess capital position increased to $466.0 million with no debt and
       an MCT of 211.1%


    Consolidated financial results

    Table 1 - Components of net income

    (in millions
     of dollars,
     except as
     otherwise                                       YTD       YTD
     noted)        Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Direct premiums
     written
     (excluding
     pools)        1,250.6   1,216.7      2.8%   2,119.4   2,077.0      2.0%
    Underwriting
     income
     (excluding
     MYA) (table 4)   43.2      43.4    (0.5)%      51.1      44.2     15.6%

    Combined ratio
     (excluding
     MYA)            95.7%     95.6%   0.1 pts     97.4%     97.8% (0.4) pts
    Interest and
     dividend
     income, net of
     expenses
     (table 7)        72.6      81.7   (11.1)%     145.1     167.2   (13.2)%
    Net investment
     losses
     (table 8)       (35.1)    (28.7)    22.3%    (170.9)    (54.5)   213.6%
    Income before
     income taxes     97.2     140.8   (31.0)%      30.3     163.0   (81.4)%

    Income tax
     expense
     (benefit)        23.0      28.8   (20.1)%      (7.6)     28.0  (127.1)%

    Effective
     income tax
     rate            23.7%     20.5%   3.2 pts   (25.1)%     17.1% (42.0)pts
    Net income        74.2     112.0   (33.8)%      37.9     135.0   (71.9)%
    Net operating
     income
     (table 13)       92.9     109.5   (15.2)%     161.9     179.6    (9.9)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per
     share ("EPS")
     - basic and
     diluted
     (dollars)        0.62      0.91   (31.9)%      0.32      1.09   (70.6)%
    Net operating
     income per
     share
     (dollars)        0.77      0.89   (13.5)%      1.35      1.45    (6.9)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Return on
     equity ("ROE")
     for the last
     12 months        1.1%     10.3% (9.2) pts
    Operating
     return on
     equity for
     the last
     12 months(1)    10.9%     12.2% (1.3) pts
    -------------------------------------------------------------------------
    Book value per
     share
     (dollars)       23.36     25.19    (7.3)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Defined as operating income for the last 12 months divided by the
        average equity (excluding accumulated other comprehensive income) for
        the same period. The average is calculated by adding the beginning
        balance and the ending balance and dividing by two.


    3.1   Explanation of consolidated financial results

    Table 2 - Changes in pre-tax operating income (year-over-year)

    (in millions of dollars, except as otherwise noted)    Q2-2009  YTD 2009
    -------------------------------------------------------------------------
    Pre-tax operating income, as reported in 2008            138.1     227.5
      Change in favourable prior year claims development     (34.7)      3.5
      Changes in current accident year from:
        Underwriting income                                    1.6     (50.1)
        Reduction in catastrophe losses                       34.6      47.8
        Results from Facility Association                     (1.8)      5.8
      Change in underwriting income excluding MYA             (0.3)      7.0
      Change in interest and dividend income, net of
                                                   expenses   (9.1)    (22.1)
      Change in corporate and distribution                    (6.3)     (7.7)
    Pre-tax operating income, as reported in 2009            122.4     204.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Pre-tax operating income is a non-GAAP measure. Catastrophe claims are
    defined as a single event resulting in $5.0 million or more in aggregate
    claims.


    Table 3 - Changes in income before income taxes (year-over-year)

    (in millions of dollars, except as otherwise noted)    Q2-2009  YTD 2009
    -------------------------------------------------------------------------
    Income before income taxes, as reported in 2008          140.8     163.0
      Change in net gains and losses on invested assets and
       other gains excluding held for trading ("HFT") debt
       securities (table 8)                                  (26.6)   (101.1)
      Change in pre-tax operating income (table 2)           (15.7)    (22.8)
      Change in market yield effect (table 10)                (1.3)     (8.8)
    Income before income taxes, as reported in Q2-2009        97.2      30.3
    Income tax (expense) benefit                             (23.0)      7.6
    Net income reported in 2009                               74.2      37.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Second quarter 2009

    Underwriting performance was sound in the second quarter with a combined
ratio of 95.7%, relatively unchanged from the second quarter in 2008. A
decrease in severe storms and progress on IFC's home insurance improvement
plan resulted in better year-over-year personal property results, offset by
lower underwriting income in commercial lines. In personal auto, underwriting
decreased slightly year-over-year, reflecting a reduction in catastrophe
claims offset by less favourable prior year claims development.
    In personal property, underwriting performance improved due to fewer
catastrophe claims in the second quarter of 2009 and progress on the company's
home insurance improvement plan. Despite the 13.0 point improvement, the
combined ratio was 107.9% in the second quarter in personal property. The
property and casualty industry has been experiencing higher water-related
claims over the last few years due to changing weather patterns and higher
precipitation and as a result, premiums in personal property are increasing.
The industry continues to be susceptible to volatility in personal property
due to unpredictable weather conditions, as evidenced by recent events across
the country including rain, hail and forest fires.
    The personal auto business produced stable results with a combined ratio
of 89.6%, in line with the same quarter of last year. A decrease in favourable
prior year claims development was offset by a reduction in catastrophe claims.
Prior year claims development benefited from the partial release of a
provision associated with the recent reinstatement of the Alberta minor injury
cap, but was offset by lower prior year claims development in other regions.
Despite personal auto rate increases over the last 18 months, the number of
written insured risks was relatively unchanged in the second quarter while
direct written premiums grew 3.3%.
    In commercial lines, strong performance in commercial auto was offset by
lower underwriting results in commercial non-auto. The combined ratio in
commercial auto improved to 73.9% driven by lower claims frequency and more
favourable prior year claims development. In commercial non-auto, unfavourable
prior year claims development and higher claims severity due to large fires
led to a combined ratio of 106.7%. The increase in severity reflects larger
losses but is within management's normal range of experience. The prior year
claims development in commercial non-auto reflects normal fluctuations which
can occur between quarters and is not considered indicative of an emerging
trend.
    Industry conditions continue to point to higher premiums across the
industry in all lines of business. Generally lower levels of capital and
deterioration in industry loss ratios in both personal and commercial lines
over the last year will likely lead to rate increases over the coming 12
months. IFC has been increasing premiums ahead of the market in both personal
auto and personal property and enhancing pricing segmentation to adapt to cost
pressures. In commercial lines, price competition has been aggressive over the
last three years; however, market conditions are beginning to moderate and
signs have emerged that the pricing environment will start to firm up over the
next 12 months. IFC rates in commercial non-auto increased slightly by 0.3% in
the second quarter. Management continues to focus on its disciplined pricing
strategy and focus on small- and medium-sized commercial accounts which are
generally less price-sensitive and more profitable over time.
    Improving capital market conditions in the second quarter led to a number
of positive developments including an increase in the excess capital position
and a significant increase in the market value of the investment portfolio
which lowered the unrealized loss position by $253.9 million. However, as the
market value of the company's preferred shares grew by $218.6 million, the
company recognized a $36.6 million loss on embedded derivatives associated
with the perpetual preferred shares, contributing to the year-over-year
decrease in net income.
    Despite the shift to a more conservative asset mix, the investment
portfolio generated substantial dividend and interest income of $72.6 million
net of expenses in the second quarter, with a market yield of 4.4%, compared
to 4.9% at the end of June 2008.
    IFC's financial position is strong with over $466.0 million of excess
capital and no debt. The MCT was 211.1% at the end of June 2009; 2.9
percentage points higher than at the end of March 2009 and 6.1 percentage
points higher than at year-end.

    Year to date 2009

    Underwriting income increased 15.6% in the first half of the year with a
healthy combined ratio of 97.4%. The improvement was driven by an overall
reduction in catastrophe claims and more favourable prior year claims
development in personal lines, partly offset by lower commercial underwriting
income in the second quarter.
    In personal lines, underwriting results improved year-over-year in both
personal auto and personal property due to fewer severe storms and more
favourable prior year claims development. The combined ratio in personal auto
improved by 2.2 percentage points to 92.8% and the combined ratio in personal
property was 109.9% in the first half of 2009. Commercial auto underwriting
profitability was strong with a combined ratio of 81.0% year-to-date, while
the combined ratio for commercial non-auto was 101.7% reflecting unfavourable
prior year claims development and higher claims severity due to large fires.
    Overall, net operating income was $161.9 million, down approximately 9.9%
reflecting a decrease in interest and dividend income mainly due to
management's prudent actions to reduce its common share exposure through
turbulent capital market conditions. The market yield of the investment
portfolio remains robust at 4.4%, generating more than $140 million of
investment income over the first six months of 2009.
    Despite solid underwriting results and healthy investment income, net
income for the first half of 2009 decreased to $37.9 million from $135.0
million in the comparable period last year. This mainly reflects the
implementation of a financial hedging program in February 2009 which led to a
non-recurring loss of $82.9 million, explained in greater detail in IFC's
first quarter report. In addition, as preferred share market values increased
in the second quarter, a loss was recognized on embedded call option
derivatives associated with the perpetual preferred shares, contributing to
the year-over-year decrease in net income.

    Return on equity and operating return on equity

    For the 12-months ended June 30, 2009, IFC's return on equity was 1.1%
and the operating return on equity (excluding other comprehensive income or
OCI) was 10.9%. The difference between return on equity and operating return
on equity (excluding OCI) reflects net investment losses associated with
general capital market weakness over the last year, strategic de-risking of
the investment portfolio, and the implementation of IFC's financials hedging
program in the first quarter of 2009.

    Book value

    Book value per share decreased to $23.36 in the second quarter from
$25.19 in the same quarter last year. The change reflects the lower market
value of our investment portfolio as capital markets declined in late 2008 and
early 2009 as well as share repurchases made under the normal course issuer
bid announced on February 20, 2008. However, book value per share increased
from $21.96 at December 31, 2008 and $21.56 at March 31, 2009, mainly
reflecting the recent rebound in equity markets.

    Recent events

    In June 2009, the Alberta Court of Appeal decided in favour of the
Alberta government to reconfirm the validity of the personal auto minor injury
cap on pain and suffering which had been questioned by the Court in February
2008. In addition, on July 29, 2009, the Alberta Insurance Rate Board
announced a 5.0% decrease in personal auto rates on mandatory insurance
coverage effective November 1, 2009. The decision reflects the reinstatement
of the personal auto minor injury cap.

    
    3.2   Underwriting income

    Table 4 - Net premiums earned, claims and general expenses

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Net premiums
     earned        1,011.3     996.1      1.5%   1,999.9   1,987.9      0.6%
    Net claims:
      Current year
       claims
       (excluding
       MYA)          673.1     668.5      0.7%   1,396.4   1,334.7      4.6%
      Current year
       catastrophes    6.3      40.9   (84.6)%      19.1      66.9   (71.4)%
      (Favourable)
       prior year
       claims
       development
       (excluding
       MYA)           (6.5)    (41.2)  (84.2)%     (43.7)    (40.3)     8.4%
    Total net claims
     (excluding
      MYA)           672.9     668.2      0.7%   1,371.8   1,361.3      0.8%
    Commissions,
     net             144.0     135.9      6.0%     284.1     284.5    (0.1)%
    Premium taxes,
     net              35.3      34.6      2.0%      68.6      69.3    (1.0)%
    General
     expenses, net   115.9     114.0      1.7%     224.3     228.6    (1.9)%
    Total
     underwriting
     expenses        295.2     284.5      3.8%     577.0     582.4    (0.9)%
    Total
     underwriting
     income
     (excluding
     MYA)             43.2      43.4    (0.5)%      51.1      44.2     15.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Table 5 - Underwriting ratios (excluding MYA)

                                                     YTD       YTD
                   Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Claims ratio     66.5%     67.1% (0.6) pts     68.6%     68.5%   0.1 pts
    Expense ratio    29.2%     28.5%   0.7 pts     28.8%     29.3% (0.5) pts
    Combined ratio   95.7%     95.6%   0.1 pts     97.4%     97.8% (0.4) pts
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Table 6 - Annualized rate of favourable prior year claims development

                                                           June 30, December
    (annualized rate, excluding MYA)   Q2-2009   Q2-2008      2009  31, 2008
    -------------------------------------------------------------------------
    (Favourable) unfavourable prior
     year claims development as a %
     of opening reserves                (0.7)%    (4.4)%    (2.3)%    (4.0)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Favourable prior year claims development

    Excluding MYA, favourable prior year claims development was $6.5 million
in the second quarter, or 0.7% of opening reserves on an annualized basis. On
a year-to-date basis, favourable prior year claims development was $43.7
million, or 2.3% of opening reserves on an annualized basis. The
year-over-year decreases in favourable prior year development in the second
quarter and year-to-date were largely driven by adjustments to commercial
non-auto reserves.
    Prior year claims development can fluctuate from quarter to quarter and
therefore, should be evaluated over longer periods of time. The historical
rate of favourable prior year claims development as a percentage of opening
claims has been approximately 3%-4% per year over the long term, but has
varied from year to year and between quarters.

    Industry pools

    Industry pools consist of the "residual market" (or Facility Association)
as well as risk-sharing pools ("RSP") in Alberta, Ontario, Quebec, New
Brunswick and Nova Scotia. In the second quarter, the net impact of industry
pools negatively impacted personal auto underwriting income by $0.7 million
year-over-year, excluding MYA. This reflects a reduced level of risk ceding
and other prior year reserve adjustments.

    
    3.3   Interest and dividend income, net of expenses

    Table 7

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Interest income   45.9      45.4      1.1%      90.5      93.9    (3.6)%
    Dividend income   30.5      40.5   (24.7)%      62.2      81.7   (23.9)%
    -------------------------------------------------------------------------
    Interest and
     dividend income,
     before expenses  76.4      85.9   (11.1)%     152.7     175.6   (13.0)%
    Expenses          (3.8)     (4.2)      0.4      (7.6)     (8.4)      0.8
    Interest and
     dividend income,
     net of expenses  72.6      81.7   (11.1)%     145.1     167.2   (13.2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Market-based
     yield             4.4%      4.9%   (0.5) pts
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The decline in interest and dividend income (before expenses) in the
second quarter and year-to-date reflects strategic actions to de-risk the
investment portfolio over the last year including the reduction of the common
share portfolio and increased investments in government bonds and treasuries.

    The market-based yield is a non-GAAP measure defined as total pre-tax
dividend and interest income (before expenses) divided by the average fair
values of equity and debt securities held during the reporting period. The
market-based yield was 4.4% in the second quarter, down from 4.9% in the same
quarter of last year. The year-over-year decrease reflects the change in mix
of our portfolio to include more government bonds and treasuries and a
significant decline in the risk-free interest rate compared to the same
quarter of 2008. The market-based yield is a measure that may not be
comparable to other companies since it is a non-GAAP measure.

    
    3.4   Net investment losses

    Table 8

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Debt securities
      Gains on
       available-
       for-sale
       ("AFS")
       securities     12.9       0.8      12.1      13.6       3.2      10.4
      Gains on
       derivatives     3.0       1.7       1.3       2.0       1.0       1.0
      Impairments        -      (1.0)      1.0      (8.4)    (12.0)      3.6
      Gains (losses)
       on debt
       securities
       and related
       derivatives    15.9       1.5      14.4       7.2      (7.8)     15.0
    -------------------------------------------------------------------------
    Equity securities
      Gains (losses),
       net of
       stand-alone
       derivatives    (4.3)     13.1     (17.4)   (107.1)     (8.8)    (98.3)
      Impairments     (1.0)    (11.8)     10.8     (19.5)    (53.6)     34.1
      Gains (losses)
       on embedded
       derivatives   (36.6)     (2.2)    (34.4)    (41.9)     10.0     (51.9)
      Losses on equity
       securities
       and related
       derivatives   (41.9)     (0.9)    (41.0)   (168.5)    (52.4)   (116.1)
    -------------------------------------------------------------------------
    Total gains
     (losses)
     excluding HFT
     debt securities (26.0)      0.6     (26.6)   (161.3)    (60.2)   (101.1)
    Gains (losses)
     on HFT debt
     securities(1)    (9.1)    (29.3)     20.2      (9.6)      5.7     (15.3)
    Total net losses,
     before income
     taxes           (35.1)    (28.7)     (6.4)   (170.9)    (54.5)   (116.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The gains (losses) on HFT debt securities are offset by a MYA to
        claims liabilities, with an objective of a minimal impact to net
        income. The difference between the MYA and the gains and losses on
        HFT debt securities is referred to as the "market yield effect" in
        this MD&A. See table 10.
    

    Second quarter 2009

    A significant improvement in capital market conditions in the second
quarter led to a substantial increase in the overall market value of the
company's invested assets. However, as the value of the preferred shares
increased by $218.6 million, a loss of $36.6 million was recognized on
embedded call option derivatives associated with perpetual preferred shares.
The loss on embedded derivatives was partly offset by a net realized gain on
debt securities of $15.9 million.

    Accounting for embedded derivatives

    The company owns perpetual preferred shares with call options which give
the issuer the right to redeem the shares at a particular price. Accounting
standards require that these options are accounted for separately from the
preferred shares which are classified as AFS. Accounting standards also
require that changes in the value of the preferred shares are recorded in
other comprehensive income (OCI) while changes in the value of the option
liability are recorded on the income statement. As the preferred shares
increased in value during the quarter the value of the associated option
liability also increased. This change is recorded on the income statement in
net investment losses (Table 8).

    Year-to-date 2009

    The loss on invested assets in the first half of 2009 reflects realized
losses associated with the implementation of the financial hedging program in
February 2009 and realized losses on embedded derivatives associated with the
increase in the value of IFC's perpetual preferred shares in the second
quarter. The financial hedging program has reduced IFC's exposure to the
financial sector which has been particularly volatile over the last year,
while the company retains an income stream from the same investments.

    Quality of the investment portfolio

    The investment portfolio includes high-quality government and corporate
bonds, as well as Canadian equity securities of large, publicly-traded,
dividend-paying companies. Approximately 97.7% of the bonds are rated 'A' or
better and 80.2% of the preferred shares are highly-rated P1 or P2. In
addition, IFC does not invest in leveraged securities and the exposure to the
U.S. market is minimal. IFC manages its investments prudently to protect
capital and generate superior after-tax returns.

    Portfolio asset mix

    The following table shows the mix of the $7.0 billion investment
portfolio.

    
    Table 9 - Portfolio asset mix (GAAP)

                                           June 30,    March 31, December 31,
                                              2009         2009         2008
    -------------------------------------------------------------------------
    Short-term notes, including cash and
     cash equivalents                        12.8%        11.8%        12.2%
    Fixed income securities                  49.5%        53.5%        53.6%
    Preferred shares                         20.9%        19.1%        18.5%
    Common shares                            12.6%        11.2%        12.1%
    Loans                                     4.2%         4.4%         3.6%
    Total invested assets including cash
     and cash equivalent                    100.0%       100.0%       100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The investment portfolio is well-positioned with substantially reduced
exposure to equity market fluctuations and a higher short-term notes and cash
position. Through the financials hedging program, IFC's common share exposure
net of total return swaps, was reduced to 7.8% as at June 30, 2009 (not shown
in the table).

    Held-for-trading debt securities and market yield adjustment

    Table 10 - Market yield effect

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Positive
     (negative)
     impact of
     MYA on
     underwriting     10.0      31.5     (21.5)     (3.5)    (10.0)      6.5
    Net gains
     (losses)
     on HFT debt
     securities       (9.1)    (29.3)     20.2      (9.6)      5.7     (15.3)
    Market yield
     effect            0.9       2.2      (1.3)    (13.1)     (4.3)     (8.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Claims liabilities are discounted at the estimated market yield of the
assets backing these liabilities. HFT bonds and some AFS securities are used
in the calculation of the market yield adjustment (MYA) to discount claims
liabilities. The MYA to claims liabilities is generally offset by gains and
losses on HFT debt securities. The objective is that these items offset each
other with a minimal overall impact to income. Any mismatch between the MYA
and the gains and losses on HFT debt securities is referred to as the "market
yield effect" in this MD&A.
    On a year-to-date basis, the market yield effect had a $13.1 million
negative impact on income due to a mismatch caused by the de-risking of the
bond portfolio which included the sale of corporate bonds which were replaced
with lower-yielding government bonds. As a result, the market yield rate used
to discount claims liabilities fell, and was not offset by gains on HFT bonds.
    The process of matching the weighted-dollar duration of the claims
liabilities to assets classified as HFT works well under normal conditions.
However, market fluctuations, change in yield curve, trading and change in
asset mix can result in a positive or negative market yield effect.

    Net unrealized gains and losses on available-for-sale securities

    
    Table 11

    (in millions                              As at
     of dollars,  -----------------------------------------------------------
     except as        June     March  December September      June     March
     otherwise         30,       31,       31,       30,       30,       31,
     noted)           2009      2009      2008      2008      2008      2008
    -------------------------------------------------------------------------
    Debt securities   18.5      37.3      30.4     (16.3)      3.2      40.7
    Common shares    (61.7)   (134.4)   (140.7)   (129.1)    (46.7)    (73.7)
    Preferred
     shares         (292.1)   (492.1)   (522.5)   (272.1)   (215.5)   (175.8)
    -------------------------------------------------------------------------
    Total net
     unrealized
     loss position
     at June 30,
     2009           (335.3)   (589.2)   (632.8)   (417.5)   (259.0)   (208.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    As equity markets rebounded in the second quarter, the unrealized loss
position in the portfolio improved by $253.9 million at June 30, 2009 compared
to March 31, 2009.
    Since IFC typically holds preferred shares for the long term, unrealized
gains and losses are generally not realized. Gains and losses in the common
share portfolio are generally realized on an ongoing basis under normal
capital market conditions reflecting the trading strategy in the high-dividend
yield common share portfolio.
    In determining the fair values of invested assets, the company relies
mainly on quoted market prices. There are no invested assets in the AFS or HFT
categories which are not quoted on an active market, except for a very limited
amount of fixed income private placements that the company holds.

    Recognition of an unrealized loss

    Common shares classified as AFS are impaired if the current market value
drops significantly below the book value, and if management believes that the
value is unlikely to recover in the near- to mid-term. This is determined by
an assessment of information available at the time. Debt securities and
preferred shares are considered to be impaired when there is evidence that
suggests the issuer will fail to make the contractual interest or principal
payments due under the terms of the instrument. Common share impairments in
the second quarter were $1.0 million and reflect the 19% increase in the
S&P/TSX Composite Index for the three months ended June 30 2009, and the
resulting reduction in our unrealized loss positions.
    The net unrealized loss position on AFS common shares at the end of June
2009 was $61.7 million and can be further analysed as follows:

    
    Table 12 - Aging of unrealized losses on AFS common shares

    (in millions of dollars,               June 30,    March 31, December 31,
    except as otherwise noted)                2009         2009         2008
    -------------------------------------------------------------------------

    (greater than) 25% below book value
     for (less than) 3 consecutive months      1.5         30.6         76.7
    (greater than) 25% below book value
     for (greater than or equal to) 3
     and (less than) 6 consecutive months     10.4         60.6         21.1
    (greater than) 25% below book value for
     (greater than or equal to)
     6 consecutive months                     45.8          5.7          1.8
    Other unrealized losses, net of
     unrealized gains                          4.0         37.5         41.1
    Total net unrealized losses on AFS
     common shares                            61.7        134.4        140.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The above table provides information on the quality of the portfolio of
AFS common shares. It is not intended to provide any indication of future
impairments.

    Other comprehensive income, net of taxes

    The improvement in the unrealized loss position on AFS securities and
dispositions of AFS securities resulted in positive other comprehensive income
("OCI") of $182.5 million in the second quarter. On a year-to-date basis, the
decrease in the unrealized loss position reflects two main factors including
improved equity market conditions in the second quarter and the realization of
$82.9 million in losses in the first quarter associated with the
implementation of the financial hedging program.

    
    3.5   Net operating income

    Table 13 - Components of net operating income

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------

    Net underwriting
     income
     (excluding
     MYA)             43.2      43.4    (0.5)%      51.1      44.2     15.6%
    Interest and
     dividend
     income
     (table 7)        72.6      81.7   (11.1)%     145.1     167.2   (13.2)%
    Corporate and
     distribution
     income
     (table 21)        6.7      13.0   (48.5)%       8.4      16.1   (47.8)%
    Tax impact       (29.6)    (28.6)     3.5%     (42.7)    (47.9)  (10.9)%
    Net operating
     income
     (excluding MYA)  92.9     109.5   (15.2)%     161.9     179.6    (9.9)%
    -------------------------------------------------------------------------

    Net operating income decreased in the second quarter as solid underwriting
performance was offset by lower dividend and interest income mainly reflecting
a decrease in the book yield associated with a more conservative asset mix.

    Table 14 - Reconciliation to net income

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------

    Net income        74.2     112.0   (33.8)%      37.9     135.0   (71.9)%
    Add losses
     before HFT debt
     securities
     (table 8)        26.0      (0.6)     26.6     161.3      60.2     101.1
    Add market yield
     effect
     (table 10)       (0.9)     (2.2)      1.3      13.1       4.3       8.8
    Tax impact        (6.4)      0.3      (6.7)    (50.4)    (19.9)    (30.5)
    Net operating
     income
     (excluding MYA)  92.9     109.5   (15.2)%     161.9     179.6    (9.8)%
    Average
     outstanding
     shares
     (millions)      119.9     122.8      (2.9)    119.9     123.6      (3.7)
    Net operating
     income per
     share (dollars)  0.77      0.89   (13.5)%      1.35      1.45    (6.9)%
    -------------------------------------------------------------------------
    

    Operating income (net and pre-tax) and net operating income per share are
non-GAAP measures. Net operating income is defined as net income excluding the
MYA and net gains on invested assets and other gains, after tax. Pre-tax
operating income is defined as net operating income before income taxes. Net
operating income per share is equal to net operating income for the period
divided by the average outstanding number of shares for the same period. These
measures are used by management and financial analysts to assess the company's
performance; however, they may not be comparable to similar metrics published
by other companies.

    
    3.6 Selected quarterly information

    Table 15

    (in millions of dollars,
    except as otherwise
    noted)                   Q2-2009   Q1-2009   Q4-2008   Q3-2008   Q2-2008
    -------------------------------------------------------------------------
    Written insured risks
     (thousands)             1,376.0     937.2   1,034.3   1,240.7   1,380.6
    Direct premiums written
     (excluding pools)       1,250.6     868.8     968.2   1,100.3   1,216.7
    Total revenues           1,064.6     936.5     956.0   1,045.8   1,065.4
    Net premiums earned      1,011.3     988.7   1,019.2   1,032.3     996.1
    (Favourable)
     unfavourable prior
     year claims
     development(1)             (6.5)    (37.2)    (52.2)    (56.4)    (41.2)
    Net underwriting
     income(1)                  43.2       7.9      11.0      61.9      43.4
    Combined ratio(%)(1)        95.7%     99.2%     98.9%     94.0%     95.6%
    Net operating income(1)     92.9      69.1      75.1     106.4     109.5
    Net income (loss)           74.2     (36.3)    (64.1)     57.3     112.0
    EPS-basic/diluted
     (dollars)                  0.62     (0.30)    (0.53)     0.47      0.91
    Net operating income
     per share (dollars)(1)     0.77      0.58      0.63      0.88      0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (in millions of dollars,
    except as otherwise
    noted)                   Q1-2008   Q4-2007   Q3-2007   Q2-2007
    ---------------------------------------------------------------
    Written insured risks
     (thousands)               945.8   1,056.7   1,273.1   1,399.7
    Direct premiums written
     (excluding pools)         860.3     961.3   1,091.2   1,209.8
    Total revenues           1,064.5   1,096.8   1,091.3   1,152.2
    Net premiums earned        991.8   1,004.7     994.0     976.7
    (Favourable)
     unfavourable prior
     year claims
     development(1)              0.9     (62.4)    (24.0)     (5.2)
    Net underwriting
     income(1)                   0.8      68.2      29.0      53.1
    Combined ratio(%)(1)        99.9%     93.2%     97.1%     94.6%
    Net operating income(1)     70.2     116.4      95.5     132.5
    Net income (loss)           23.0      95.8      92.0     194.3
    EPS-basic/diluted
     (dollars)                  0.19      0.77      0.74      1.56
    Net operating income
     per share (dollars)(1)     0.56      0.93      0.77      1.06
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    (1) Excluding MYA


    3.7    Seasonality of the business

    The property and casualty insurance business is seasonal in nature. While
underwriting revenues are generally stable from quarter to quarter,
underwriting income is typically higher in the second and third quarters of
each year. This is driven by lower combined ratios in those periods, which is
reflected in the seasonal index below. The seasonal indicator is a non-GAAP
measure which represents the ratio of the quarterly combined ratio to the
annual combined ratio, excluding the MYA.

    Table 16 - Seasonal indicator

                                                                    Six-year
                                 2008  2007  2006  2005  2004  2003  average
    -------------------------------------------------------------------------
    Q1                           1.03  1.01  1.02  1.02  1.10  1.06     1.04
    Q2                           0.98  0.99  0.93  0.94  0.92  0.95     0.95
    Q3                           0.97  1.02  1.01  1.02  0.98  0.96     0.99
    Q4                           1.02  0.98  1.05  1.01  1.01  1.04     1.02
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Intact Financial Corporation has two segments: 1) Underwriting and, 2)
Corporate and distribution. P&C insurance is divided into two lines of
business, personal and commercial lines. Corporate and distribution includes
income from the company's affiliated distribution network, as well as other
corporate items.

    Section 4 - Personal lines

    4.1   Financial results

    Table 17

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Direct premiums
     written
     (excluding
     pools)
      Automobile     635.2     615.1      3.3%   1,062.2   1,040.1      2.1%
      Property       286.6     276.1      3.8%     473.0     455.6      3.8%
      Total          921.8     891.2      3.4%   1,535.2   1,495.7      2.6%
    Written insured
     risks (thousands)
      Automobile     751.2     751.8    (0.1)%   1,256.1   1,261.6    (0.4)%
      Property       474.6     478.8    (0.9)%     796.0     804.2    (1.0)%
      Total        1,225.8   1,230.6    (0.4)%   2,052.1   2,065.8    (0.7)%
    Net premiums
     earned
      Automobile     516.2     509.2      1.4%   1,018.2   1,015.7      0.2%
      Property       229.6     218.9      4.9%     455.1     436.5      4.3%
      Total          745.8     728.1      2.4%   1,473.3   1,452.2      1.5%
    Net underwriting
     income (loss)
     (excluding MYA)
      Automobile      53.6      55.1    (2.7)%      73.1      50.5     44.8%
      Property       (18.2)    (45.7)  (60.2)%     (45.2)    (61.1)  (26.0)%
    Total
     (excluding MYA)  35.4       9.4    276.6%      27.9     (10.6) (363.2)%
      Market yield
       adjustment      6.4      20.1      13.7      (2.3)     (6.3)      4.0
      Net underwriting
       income (loss)
       (including
       MYA)           41.8      29.5      12.3      25.6     (16.9)     42.5


    Table 18 - Underwriting ratios

                                                      YTD       YTD
                   Q2-2009   Q2-2008     Change      2009      2008    Change
    -------------------------------------------------------------------------

    Personal auto
      Claims ratio
       (excluding
       MYA)          64.9%     64.4%    0.5 pts     68.4%     69.8% (1.4) pts
      Expense ratio  24.7%     24.8%  (0.1) pts     24.4%     25.2% (0.8) pts
      Combined ratio
       (excluding
       MYA)          89.6%     89.2%    0.4 pts     92.8%     95.0% (2.2) pts
    Personal property
      Claims ratio
       (excluding
       MYA)          74.2%     87.4%  (13.2)pts     76.4%     80.1% (3.7) pts
      Expense ratio  33.7%     33.5%    0.2 pts     33.5%     33.9% (0.4) pts
      Combined
       ratio
       (excluding
       MYA)         107.9%    120.9%  (13.0)pts    109.9%    114.0% (4.1) pts
    Personal lines
     - total
      Claims ratio
       (excluding
       MYA)          67.8%     71.4%  (3.6) pts     70.9%     72.9% (2.0) pts
      Expense ratio  27.5%     27.3%    0.2 pts     27.2%     27.8% (0.6) pts
      Combined
       ratio
       (excluding
       MYA)          95.3%     98.7%  (3.4) pts     98.1%    100.7% (2.6) pts
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4.2   Explanation of financial results
    

    Second quarter 2009

    In personal auto, underwriting income was strong with a combined ratio of
89.6% as favourable prior year claims development and storm-related
catastrophe claims decreased in the second quarter. In personal auto, direct
written premium growth increased to 3.3% due to higher rates. Despite higher
premiums, the number of written insured risks remained stable.
    Personal property second quarter underwriting results improved
year-over-year due to lower catastrophe claims as well as higher premiums
reflecting progress on IFC's home insurance action plan. Despite fewer severe
storms, the combined ratio in personal property was 107.9% in the second
quarter. The property and casualty insurance industry in Canada has
experienced difficult results in home insurance over the last few years due to
rising water-related claims, changing weather patterns and higher
reconstruction costs. IFC is addressing these issues in the personal property
segment through a robust action plan to improve the combined ratio by 10-15%,
outlined in detail in IFC's first quarter report. The main initiatives include
rate adjustments and changes in pricing segmentation, adjusting insured
amounts, review of the claims process, product design review, as well as
efforts to promote customer loss prevention and education.

    Year-to-date 2009

    Personal auto underwriting results improved on a year-over-year basis
mainly due to more favourable prior year claims development and a decrease in
storm activity. Direct written premiums increased 2.1% reflecting higher
premiums, partly offset by a small decline in written insured risks. Industry
personal auto premiums are starting to increase to take into consideration
cost pressures associated with medical cost inflation in Ontario.
    Personal property underwriting results improved year-to-date reflecting a
4.3% increase in net earned premiums and fewer catastrophe claims.
Water-related claims continue to weigh on underwriting profitability leading
to an overall combined ratio of 109.9% for the first six months of 2009. As
mentioned above, an aggressive action plan is being executed to take advantage
of opportunities to improve profitability in this segment.

    Section 5 - Commercial lines

    
    5.1   Financial results

    Table 19

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Direct premiums
     written
     (excluding
     pools)
      Automobile      97.2      97.8    (0.6)%     167.9     167.9      0.0%
      Non-auto       231.6     227.7      1.7%     416.3     413.4      0.7%
      Total          328.8     325.5      1.0%     584.2     581.3      0.5%
    Written insured
     risks
     (thousands)
      Automobile      83.8      83.0      1.0%     141.7     140.3      1.0%
      Non-auto        66.4      67.1    (1.0)%     119.5     120.3    (0.7)%
      Total          150.2     150.1      0.1%     261.2     260.6      0.2%
    Net premiums
     earned
      Automobile      78.0      79.3    (1.6)%     155.3     158.0    (1.7)%
      Non-auto       187.4     188.7    (0.7)%     371.4     377.6    (1.6)%
      Total          265.4     268.0    (1.0)%     526.7     535.6    (1.7)%
    Net underwriting
     income (loss)
     (excluding MYA)
      Automobile      20.4      10.4     96.2%      29.5      16.2     82.1%
      Non-auto       (12.4)     23.7  (152.3)%      (6.3)     38.6  (116.3)%
    Total (excluding
     MYA)              8.0      34.1   (76.5)%      23.2      54.8   (57.7)%
      Market yield
       adjustment      3.5      11.4    (7.9)       (1.3)     (3.7)     2.4
      Net
       underwriting
       income
       (including
       MYA)           11.5      45.5   (34.0)       21.9      51.1     (29.2)
    -------------------------------------------------------------------------


    Table 20 - Underwriting ratios

                                                      YTD       YTD
                   Q2-2009   Q2-2008     Change      2009      2008    Change
    -------------------------------------------------------------------------

    Commercial auto
      Claims ratio
       (excluding
       MYA)          45.7%     60.2%  (14.5)pts     53.2%     62.2%  (9.0)pts
      Expense ratio  28.2%     26.7%    1.5 pts     27.8%     27.6%   0.2 pts
      Combined ratio
       (excluding
       MYA)          73.9%     86.9%  (13.0)pts     81.0%     89.8%  (8.8)pts
    Commercial
     non-auto
      Claims ratio
       (excluding
       MYA)          70.2%     53.5%   16.7 pts     66.0%     54.1%  11.9 pts
      Expense ratio  36.5%     34.0%    2.5 pts     35.7%     35.7%   0.0 pts
      Combined ratio
       (excluding
       MYA)         106.7%     87.5%   19.2 pts    101.7%     89.8%  11.9 pts
    Commercial
     lines - total
      Claims ratio
       (excluding
       MYA)          63.0%     55.5%    7.5 pts     62.2%     56.5%   5.7 pts
      Expense ratio  34.0%     31.8%    2.2 pts     33.4%     33.3%   0.1 pts
      Combined ratio
       (excluding
       MYA)          97.0%     87.3%    9.7 pts     95.6%     89.8%   5.8 pts
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.2   Explanation of financial results
    

    Second quarter 2009

    Direct premiums written in commercial lines were up marginally reflecting
pricing discipline which has resulted in more modest top-line growth over the
last year. The commercial pricing environment has started to show signs that
it will begin to firm up over the next 12 months due to higher industry loss
ratios and lower levels of excess capital.
    Strong underwriting income in commercial auto was offset by lower
underwriting results in commercial non-auto. The combined ratio in commercial
auto was very strong at 73.9% reflecting lower frequency and more favourable
prior year claims development. In commercial non-auto, underwriting results
decreased due to higher claims severity due to large fires and unfavourable
prior year claims development which led to a combined ratio of 106.7%. The
increase in severity reflects larger losses in the current quarter but is
within management's normal range of experience. The increase in commercial
property and liability reserves in the second quarter reflect normal
fluctuations which can occur from quarter to quarter and is not considered to
be indicative of an emerging trend.
    IFC is well positioned to take advantage of organic growth opportunities
as the commercial market begins to firm up due to the company's discipline,
pricing sophistication and capacity for growth.

    Section 6 - Corporate and distribution

    
    6.1   Financial results

    Our corporate and distribution segment includes non-underwriting
activities of the company's affiliated distribution network (Canada
Brokerlink, Grey Power and Equisure), and other activities.

    Table 21 - Corporate and distribution income

    (in millions of
    dollars, except
    as otherwise                                     YTD       YTD
    noted)         Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------

    Distribution
     income           27.2      26.7      1.9%      48.1      48.3    (0.4)%
    Distribution
     expenses         20.5      20.4      0.5%      39.4      39.3      0.3%
      Distribution
       earnings        6.7       6.3      6.3%       8.7       9.0    (3.3)%
    Corporate
     income (loss),
     net                 -       6.7       n/a      (0.3)      7.1  (104.2)%
    Corporate and
     distribution
     income before
     income taxes      6.7      13.0   (48.5)%       8.4      16.1   (47.8)%
    -------------------------------------------------------------------------

    6.2   Explanation of financial results

    The decrease in corporate and distribution income mainly reflects the
timing of certain corporate expenses, none of which are material in value.

    Section 7 - Financial condition

    7.1    Balance sheet highlights

    The table below shows the significant balance sheet items as at December
31, 2008 and June 30, 2009.

    Table 22

                                                             As at
                                                 ----------------------------
    (in millions of dollars except as                  June 30,  December 31,
     otherwise noted)                                     2009          2008
    -------------------------------------------------------------------------
    Cash and cash equivalents                            110.7         510.4
    Invested assets
      Debt securities                                  4,250.5       3,832.5
      Equity securities                                2,344.7       2,019.5
      Loans                                              286.5         242.3
      Total invested assets                            6,881.7       6,094.3
    Premiums receivable                                1,595.9       1,469.4
    Deferred acquisition costs                           390.2         382.4
    Reinsurance assets                                   223.1         224.2
    Intangible assets and goodwill                       312.2         297.2
    Other assets                                         656.7         795.5
    Total assets                                      10,170.5       9,773.4
    Claims liabilities                                 4,104.7       4,064.9
    Unearned premiums                                  2,439.2       2,366.8
    Other liabilities                                    825.3         709.1
    Total liabilities                                  7,369.2       7,140.8
    Share capital and contributed surplus              1,144.8       1,149.8
    Retained earnings                                  1,890.2       1,928.9
    Accumulated other comprehensive loss                (233.7)       (446.1)
    Shareholders' equity                               2,801.3       2,632.6
    Book value per share (dollars)                       23.36         21.96
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Invested assets and cash and cash equivalents, increased by $387.7
million mainly reflecting the recovery of capital markets during the second
quarter. The decrease in cash and cash equivalents reflects positive cash
generated from operations which was more than offset by the sale or maturity
of Canadian treasury bills with a maturity less than 90 days. The proceeds
from the sale of short term treasury bills were reinvested in Canadian
treasury bills classified as debt securities. At June 30, 2009 the portfolio
included $847.9 million of Canadian treasury bills compared to $777.0 million
at December 31, 2008.

    Premiums receivable, unearned premiums and deferred acquisition costs
increased due to a higher amount of direct written premiums in the second
quarter of 2009 compared to the fourth quarter of 2008, consistent with the
seasonality of the business. See section 3.7.

    Claims liabilities increased in the first six months of 2009 mainly due
to cost inflation and an increase in claims incurred offset by an increase in
paid claims.

    Other assets decreased mainly due to tax refunds received during the
second quarter.

    The following table shows the development of claims liabilities for the
10 most recent accident years, with subsequent developments during the
periods. The original reserve estimates are evaluated quarterly for redundancy
or deficiency. The evaluation is based on actual payments in full or partial
settlement of claims and current estimates of claims liabilities for claims
still open or claims still unreported.

    
    Table 23


    (in millions
      of dollars,                        Accident year
      except as  ------------------------------------------------------------
      otherwise
      noted)     Total     2008     2007     2006     2005     2004     2003
    -------------------------------------------------------------------------

    Original
     reserve            1,376.4  1,282.2  1,178.0  1,118.8  1,117.7    973.2
    (Favourable)
     unfavourable
     development
     during Q2
     2009
      Including
       MYA       (17.0)     1.4     (5.6)     0.8     (6.2)    (6.6)     1.2
      Excluding
       MYA        (6.5)     1.7     (2.7)     3.1     (4.6)    (5.6)     2.2
    (Favourable)
     unfavourable
     development
     during YTD
     2009
      Including
       MYA       (40.7)     1.1     (5.1)    (3.8)    (9.6)   (12.4)    (3.9)
      Excluding
       MYA       (43.7)     0.2     (5.8)    (4.2)    (9.9)   (12.7)    (4.0)
    Cumulative
     development
      Excluding
       MYA                  0.2     (5.6)   (45.7)  (132.7)  (262.1)  (206.2)
      As a % of
       original
       reserve              0.0%   (0.4)%   (3.9)%  (11.9)%  (23.4)%  (21.2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (in millions
      of dollars,          Accident year
      except as  -----------------------------------
      otherwise                              1999 &
      noted)        2002     2001     2000  earlier
    ------------------------------------------------

    Original
     reserve       838.6    729.0    655.5  1,512.9
    (Favourable)
     unfavourable
     development
     during Q2
     2009
      Including
       MYA          (3.7)     1.0     (0.3)     0.9
      Excluding
       MYA          (3.3)     1.4     (0.1)     1.4
    (Favourable)
     unfavourable
     development
     during YTD
     2009
      Including
       MYA          (8.4)    (0.1)    (1.7)     3.1
      Excluding
       MYA          (8.5)    (0.1)    (1.7)     3.0
    Cumulative
     development
      Excluding
       MYA         (37.1)    32.0     29.5     (6.3)
      As a % of
       original
       reserve     (4.4)%    4.4%     4.5%    (0.4)%
    ------------------------------------------------
    ------------------------------------------------


    7.2   Shareholders' equity
    

    As of July 31, 2009, share capital was comprised of 119,906,567 common
shares.
    On February 19, 2009, ING Groep completed the sale of its entire 70%
ownership position in ING Canada via the sale of 36,183,480 of ING Canada
common shares to a number of institutional investors through a private
placement and the sale of 47,757,920 common shares pursuant to a "bought deal"
secondary public offering. The Special Share owned by ING Groep was
immediately converted into one common share and was also sold in the secondary
offering.
    Under the company's long-term incentive plan ("LTIP"), certain employees
were awarded performance units as part of their compensation. At the end of
the performance cycle, the performance units will ultimately be converted to a
certain number of restricted common shares determined by the company's
three-year average return on equity compared to the Canadian P&C industry
average. In May 2009, the company delivered 53,495 restricted common shares,
as required under the LTIP for the three year performance cycle of 2006-2008.
For the current ongoing cycles, the total estimate of units accrued by
employees is 287,498 as at June 30, 2009.
    Accumulated other comprehensive income (loss) ("AOCI") is a component of
shareholders' equity. It reflects the unrealized gains or losses related to
AFS assets, net of income taxes, shown in the table below.

    
    Table 24

                                                     June 30, 2009
    (in millions of dollars, except as     ----------------------------------
     otherwise noted)                      Pre-tax        Taxes    After-tax
    -------------------------------------------------------------------------
    Opening AOCI balance on January 1,
     2009                                   (632.8)       186.7       (446.1)
    Increase in fair values during the
     period                                  180.7        (51.3)       129.4
    Realized losses reclassified to
     income during the period                116.7        (33.7)        83.0
    AOCI as at June 30, 2009                (335.4)       101.7       (233.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Unrealized losses on AFS assets were $632.8 million on January 1, 2009.
During the period, the company sold AFS assets resulting in pre-tax realized
net losses of $116.7 million. These were transferred to net investment losses
in the income statement. The fair value of AFS assets increased during the
period due to the capital market recovery, representing a pre-tax increase of
$180.7 million in AOCI.


    7.3   Liquidity and capital resources

    Table 25 - Cash flow and liquidity

    (in millions
     of dollars,
     except as
     otherwise                                       YTD       YTD
     noted)        Q2-2009   Q2-2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Selected
     inflows and
     (outflows)
    Operating
     activities:
      Cash provided
       by operating
       activities    228.0     240.5    (5.2)%     244.9     198.2     23.6%
    Investing
     activities:
      Purchases of
       invested
       assets, net
       of sales     (145.7)    (41.8)   248.6%    (515.5)     44.2       n/a
    Financing
     activities:
      Dividends
       paid          (38.3)    (37.9)     1.1%     (76.6)    (76.5)     0.1%
      Common
       shares
       repurchased
       for
       cancellation      -     (82.0)      n/a         -     (98.7)      n/a

    Change in
     cash and cash
     equivalents
     during the
     period           21.7      60.6     64.2%    (399.7)     34.2       n/a
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Cash provided by operating activities was used in investing and financing
activities such as the payment of dividends and the purchase of invested
assets, mainly Canadian treasury bills classified as debt securities.

    Capital and cash management

    The company has a prudent capital management program in place to ensure
that its capital is employed effectively. The company's excess capital could
be used to support growth initiatives, to fund share buybacks in the future or
to increase dividends.
    The Company's MCT level at June 30, 2009 was very strong at 211.1%
representing a 2.9 percentage point increase compared to March 31, 2009 and a
6.1 percentage point increase from December 31, 2008. The increase is mainly
due to improvements in equity market values during the period.
    Based on an MCT of 170%, on June 30, 2009 the company had approximately
$466.0 million of total excess capital. Although the minimum MCT ratio
required by OSFI is 150%, the company has an internal operating target of
170%.

    The following table presents the MCT ratio of the company's insurance
subsidiaries with a total for all companies.

    
    Table 26

    MCT - P&C Insurance Companies

    (in millions
     of dollars,
     except as      Intact    Belair    Nordic     Novex Trafalgar
     otherwise      Insur-    Insur-    Insur-    Insur-    Insur-
     noted)           ance      ance      ance      ance      ance     Total
    -------------------------------------------------------------------------
    At June 30, 2009
      Total
       capital
       available     970.4     218.5     720.2     194.0     176.3   2,279.4
      Total
       capital
       required      479.5      88.3     379.6      70.5      61.7   1,079.6
      Excess
       capital       490.9     130.2     340.6     123.5     114.6   1,199.8
      MCT %         202.4%    247.4%    189.7%    274.9%    285.6%    211.1%
      Excess at
       150%          251.2      86.1     150.8      88.1      83.7     659.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    At December 31, 2008
      Total
       capital
       available     867.5     186.1     673.3     196.3     173.3   2,096.5
      Total
       capital
       required      454.0      84.2     359.4      66.5      58.9   1,023.0
      Excess
       capital       413.5     101.9     314.0     129.8     114.4   1,073.6
      MCT %         191.1%    221.1%    187.4%    295.2%    294.1%    205.0%
      Excess at
       150%          186.5      59.8     134.3      96.5      84.9     562.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On February 17, 2009, the Board of Directors increased the company's
quarterly dividend by $0.01 to $0.32, a 3.2% increase. A quarterly cash
dividend of $0.32 per common share was paid on March 31, 2009 and June 30,
2009.

    Estimated MCT impact of changes in the market value of IFC's common and
    preferred shares
    

    The MCT is impacted by many factors including changes in the 1) market
value of IFC's invested assets; 2) mix of invested assets; 3) combined ratio
and 4) growth in premiums and change in reserves.
    Based on IFC's MCT of 211.1% on June 30, 2009, a 10% increase or decrease
in the market value of IFC's portfolio of common shares would result in an
approximate 0.8 percentage point increase or decrease in the MCT,
respectively, all else being equal. Similarly, a 10% increase or decrease in
the market value of IFC's preferred share portfolio would have approximately a
7.1 percentage point increase or decrease in the MCT, respectively, all else
being equal.

    Rating agencies

    Intact Financial Corporation has a long-term issuer rating with Moody's
Investors Services of A3 and the company's five principal operating insurance
subsidiaries are rated Aa3 for insurance financial strength (IFS). These
ratings were affirmed on February 6, 2009. On June 2, 2009 A.M. Best also
affirmed the A+ (Superior) financial strength rating (FSR) of the company's
five principal operating insurance subsidiaries. Although the company does not
have any senior unsecured debt, DBRS has assigned a rating of A (low).

    Financing

    Effective December 31, 2008, the company has an unsecured, committed
credit facility of $150 million in replacement of the previous uncommitted
credit facility of $100 million. To date, no amounts have been drawn under the
facility.

    Section 8 - Accounting and disclosure matters

    
    8.1   Internal controls over financial reporting

    Management has designed and is responsible for maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with Canadian GAAP.
    No changes were made to the company's internal controls over financial
reporting during the period ended June 30, 2009 that have materially affected,
or are reasonably likely to materially affect the company's internal controls
over financial reporting.

    8.2   Critical accounting estimates and assumptions

    The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. The year-to-date results of the company
reflect management's judgments regarding the impact of prevailing global
credit, and equity market conditions. Given the uncertainty surrounding the
continued volatility in these markets, and the general lack of liquidity in
financial markets, the actual financial results could differ from those
estimates.
    There are no new critical accounting estimates or assumptions compared to
the information provided in the annual MD&A.

    8.3   New accounting standards

    The company's Unaudited Consolidated Interim Financial Statements have
been prepared in accordance with GAAP. The principal accounting policies are
described in the company's 2008 annual report. There have been no significant
changes in those accounting policies except as follows.
    

    Goodwill and intangible assets

    Effective January 1, 2009, the company applied the new Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and
Intangible Assets. This Section replaces Section 3062, Goodwill and Other
Intangible Assets, and Section 3450, Research and Development Costs, and
establishes standards for the recognition, measurement and disclosure of
goodwill and intangible assets. The provisions relating to the definition and
initial recognition of intangible assets, including internally generated
intangible assets, are equivalent to the corresponding provisions of IAS 38,
Intangible Assets, of International Financial Reporting Standards ("IFRS").
    In applying Section 3064, the company has reclassified certain fixed
assets from Other assets to Intangible assets on the unaudited consolidated
balance sheets. The amount reclassified net of amortization was $89.8 million
as at June 30, 2009, (December 31, 2008 - $79.4 million). This
reclassification had no impact on the company's net income for the quarter.

    
    Credit risk and the fair value of financial assets and financial
    liabilities
    

    Effective January 20 2009, the company also applied the new Emerging
Issues Committee ("EIC") abstract 173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities, EIC-173 requires an entity to take
into account its own credit risk and that of the relevant counterparties when
determining the fair value of financial assets and financial liabilities,
including derivative instruments. The adoption of this new CICA abstract has
not had a significant impact on the company's results or financial condition
as credit risks associated with our financial assets and liabilities are
incorporated into the company's valuation methodology.

    International financial reporting standards

    The Canadian Accounting Standards Board ("AcSB") has confirmed January 1,
2011 as the date IFRS will replace current Canadian standards and
interpretations as Canadian generally accepted accounting principles (Canadian
GAAP) for publicly accountable enterprises.
    In order to prepare and implement the conversion to IFRS, the company has
developed an IFRS changeover plan. This plan addresses and provides a timeline
for key elements of the company's conversion to IFRS including:
    
    -   Accounting policy changes
    -   Information technology and data systems impacts
    -   Education and training requirements
    -   Internal control over financial reporting
    -   Financial reporting requirements
    -   Impacts on business activities
    -   Actuarial and regulatory implications
    

    A technical accounting policies group was formed, comprising
approximately ten accounting professionals from within the company who have a
sound knowledge of accounting standards and our operations.
    This core team also partnered with the relevant functional areas of the
company, including information technology, capital management and actuarial
services, to assess the specific and overall impact of IFRS. As the
implementation process moves forward, the company expects to continue to
revisit its changeover plan; accordingly, changes to the existing plan may be
required, especially as new exposure drafts or standards expected to impact
the company are released.
    Overall, the IFRS changeover plan is being implemented, with key IFRS
standards analysed and compared against the company's current Canadian GAAP
policies. Key accounting policy alternatives have been identified and their
impacts are currently being assessed.

    
    8.4   Future accounting changes

    Business combinations, consolidated financial statements and non-
    controlling interest
    

    In January 2009, the CICA issued three new accounting standards: Section
1582, Business Combinations, Section 1601, Consolidated Financial Statements,
and Section 1602, Non-controlling interests, to converge the accounting for
business combinations and the reporting of non-controlling interest to
International financial reporting standards (IFRS).
    Effective January 1, 2011, the company will apply the recommendations of
Section 1582, Business Combinations, which replaces Section 1581, Business
Combinations, and establishes new guidance on the recognition and measurement
at fair value of all assets and all liabilities of the acquired business.
    Also effective January 1, 2011, the company will apply Section 1601,
Consolidated Financial Statements, and Section 1602, Non-Controlling
Interests, which together replace Section 1600, Consolidated Financial
Statements, and establish new guidance on the accounting and presentation for
non-controlling interests and for transactions with non-controlling interest.
These two new standards must be adopted concurrently with Section 1582.
    The company is currently assessing the impact the adoption of these
Sections will have on its consolidated financial statements.


    Section 9 - Risk management

    The company has not significantly changed its risk management strategy as
compared to the information presented in the annual MD&A.

    
    9.1   Estimated impact of changes in interest rates and equity prices

    Impact of changes in interest rates
    

    For our AFS debt or preferred securities a 100 basis point increase in
interest rates would increase income before income taxes by approximately
$12.7 million as a result of gains of marking to market the written call
option liabilities embedded in our redeemable preferred shares. A 100 basis
point increase would also decrease OCI by approximately $170.2 million.
Conversely, a 100 basis point decrease in interest rates would lower income
before income taxes and increase OCI by the same amounts, respectively.

    Impact of changes in equity prices

    As at June 30, 2009, management estimates that a 10.0% increase in equity
markets would have no impact on income before income taxes and increase OCI by
$39.0 million. Excluding the impact of any impairment, a 10.0% decrease in
equity prices would have the corresponding opposite effect, lowering OCI by
the same amount.

    Key assumptions

    The analysis in this section is based on the following assumptions: 1)
the securities in the company's portfolio are not impaired; 2) interest rates
and equity prices move independently; 3) shifts in the yield curve are
parallel; 4) credit and liquidity risks have not been considered, and, 5) all
of our debt securities and preferred shares are AFS. For our HFT debt
securities, which are marked-to-market, the estimated impact on income before
income taxes of a 100 basis point increase or decrease in interest rates is
assumed to be offset by the MYA. In addition, it is important to note that AFS
securities in an unrealized loss position, as reflected in OCI, may at some
point in the future be realized either through a sale or impairment. See
section 3.4, "Net Investment Losses".

    
    Section 10 - Other matters

    10.1  Related-party transactions
    

    Subsequent to the disposal by ING Groep of its shareholding in the
company, all related-party transactions are with entities associated with the
Company's distribution segment.

    
    10.2  Cautionary note regarding forward-looking statements
    

    Certain statements in this report or included by reference about the
company's current and future plans, expectations and intentions, results,
levels of activity, performance, goals or achievements or any other future
events or developments are forward-looking statements. The words "may",
"will", "would", "should", "could", "expects", "plans", "intends", "trends",
"indications", "anticipates", "believes", "estimates", "predicts", "likely" or
"potential" or the negative or other variations of these words or other
similar or comparable words or phrases identify such forward-looking
statements.

    Forward-looking statements are based on estimates and assumptions made by
management based on management's experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors that management believes are appropriate in the circumstances. Many
factors could cause the company's actual results, performance or achievements
or future events or developments to differ materially from those expressed or
implied by the forward-looking statements. These factors include, without
limitation, the following: the company's ability to implement its strategy or
operate its business as management currently expects; its ability to
accurately assess the risks associated with the insurance policies that the
company writes; unfavourable capital market developments or other factors
which may affect the company's invested assets and its pension plans funding
obligations; the cyclical nature of the P&C insurance industry; management's
ability to accurately predict future claims frequency; government regulations;
litigation and regulatory actions; periodic negative publicity regarding the
insurance industry; intense competition; the company's reliance on brokers and
third parties to sell its products; the company's ability to successfully
pursue its acquisition and business strategies; the company's participation in
the Facility Association (a mandatory pooling arrangement among all industry
participants); terrorist attacks and ensuing events; the occurrence of
catastrophic events; the company's ability to maintain its financial strength
ratings; the company's ability to alleviate risk through reinsurance; the
company's ability to successfully manage credit risk; the company's reliance
on information technology and telecommunications systems; the company's
dependence on key employees; general economic, financial and political
conditions; the company's dependence on the results of operations of its
subsidiaries; the accuracy of analyst earnings estimates or the consensus
figure based upon such estimates; the volatility of the stock market and other
factors affecting the company's share price; the limited trading history of
its common shares; and future sales of a substantial number of its common
shares. These factors are not intended to represent a complete list of the
factors that could affect the Company and should be considered carefully, by
readers who should not place undue reliance on the company's forward-looking
statements.
    The company and management have no intention and accept no responsibility
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required by law.



    
                                 Intact Financial Corporation
                                 Unaudited Interim Consolidated Financial
                                 Statements
                                 -------------------------------------------
                                 For the first quarter ended March 31, 2009



    Intact Financial Corporation
    Unaudited interim consolidated balance sheets
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------

                                                          As at        As at
                                                  June 30, 2009  December 31,
                                                                        2008
    -------------------------------------------------------------------------
    Assets
    Cash and cash equivalents                        $    110.7   $    510.4
    Invested assets (note 3)
      Debt securities                                   4,250.5      3,832.5
      Equity securities                                 2,344.7      2,019.5
      Loans                                               286.5        242.3
                                                 ----------------------------
                                                        6,881.7      6,094.3

    Premium receivables                                 1,595.9      1,469.4
    Accrued interest and dividend income                   33.5         34.7
    Other receivables                                     266.7        247.0
    Deferred acquisition costs                            390.2        382.4
    Reinsurance assets                                    223.1        224.2
    Other assets                                          270.3        238.6
    Income taxes receivable                                52.9        221.0
    Future income tax asset                                33.3         54.2
    Intangibles                                           145.0        136.4
    Goodwill                                              167.2        160.8
    -------------------------------------------------------------------------
                                                     $ 10,170.5   $  9,773.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Claims liabilities (note 4)                      $  4,104.7   $  4,064.9
    Unearned premiums                                   2,439.2      2,366.8
    Other liabilities                                     794.2        701.7
    Income taxes payable                                   31.1          7.4
                                                 ----------------------------
                                                        7,369.2      7,140.8
    Shareholders' equity
    Share capital (note 5)                              1,061.5      1,061.5
    Contributed surplus                                    83.3         88.3
    Retained earnings                                   1,890.2      1,928.9
    Accumulated other comprehensive loss                 (233.7)      (446.1)
                                                 ----------------------------
                                                        2,801.3      2,632.6
    -------------------------------------------------------------------------
                                                     $ 10,170.5   $  9,773.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Intact Financial Corporation
    Unaudited interim consolidated statements of income
    For the periods ended June 30
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------

                                         Three months            Six months
                                       ---------------       ---------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenues
    Premiums written
      Direct                      $ 1,248.4  $ 1,217.9  $ 2,121.8  $ 2,080.2
      Ceded                           (26.2)     (26.8)     (49.8)     (49.3)
                                  -------------------------------------------
      Net                           1,222.2    1,191.1    2,072.0    2,030.9
    Changes in net unearned
     premiums                        (210.9)    (195.0)     (72.1)     (43.0)
                                  -------------------------------------------
    Net premiums earned             1,011.3      996.1    1,999.9    1,987.9
    Interest and dividend income       76.4       85.9      152.7      175.7
    Net investment losses (note 9)    (35.1)     (28.7)    (170.9)     (54.5)
    Distribution and other             12.0       12.1       19.4       20.8
    -------------------------------------------------------------------------
                                    1,064.6    1,065.4    2,001.1    2,129.9
    Expenses
    Underwriting
      Claims                          662.9      636.7    1,375.3    1,371.3
      Commissions, premium taxes
       and general expenses           295.2      284.5      577.0      582.4
                                  -------------------------------------------
                                      958.1      921.2    1,952.3    1,953.7
    Distribution and other              9.3        3.4       18.5       13.2
                                  -------------------------------------------
                                      967.4      924.6    1,970.8    1,966.9
    -------------------------------------------------------------------------
    Income before income taxes         97.2      140.8       30.3      163.0
    Income tax expense (benefit)       23.0       28.8       (7.6)      28.0
    -------------------------------------------------------------------------
    Net income                    $    74.2  $   112.0  $    37.9  $   135.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share, basic
     and diluted (in dollars)     $    0.62  $    0.91  $    0.32  $    1.09
    Dividends per share (in
     dollars)                     $    0.32  $    0.31  $    0.64  $    0.62
    Basic and diluted average
     number of common shares
     (in millions)                    119.9      122.8      119.9      123.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Unaudited interim consolidated statements of comprehensive income
    For the periods ended June 30
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------

                                         Three months            Six months
                                       ---------------       ---------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Net income                    $    74.2  $   112.0  $    37.9  $   135.0

    Net decrease (increase) in
     unrealized losses on available
     for sale securities              264.3      (48.1)     180.7     (149.9)
    Income taxes                      (74.5)      23.0      (51.3)      56.9
                                  -------------------------------------------
                                      189.8      (25.1)     129.4      (93.0)
    Reclassification of net (gains)
     losses to income                 (10.5)      (2.0)     116.7       67.2
    Income taxes                        3.2       (3.8)     (33.7)     (22.8)
                                  -------------------------------------------
                                       (7.3)      (5.8)      83.0       44.4
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss)                           182.5      (30.9)     212.4      (48.6)

    Total comprehensive income    $   256.7  $    81.1  $   250.3  $    86.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Intact Financial Corporation
    Unaudited interim consolidated statements of changes in shareholders'
    equity
    For the periods ended June 30
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------
                                                         Accumulated
                                                            other
                          Share  Contributed  Retained  comprehensive
                         capital    surplus   earnings       loss      Total
    -------------------------------------------------------------------------
    Balance as at December
     31, 2008          $ 1,061.5  $    88.3  $ 1,928.9  $  (446.1) $ 2,632.6
    Net income                 -          -       37.9          -       37.9
    Other comprehensive
     income (loss)             -          -          -      212.4      212.4
    Common shares
     repurchased for
     cancellation
     (note 5)                  -          -          -          -          -
    Dividends paid             -          -      (76.6)         -      (76.6)
    Stock-based
     compensation              -       (5.0)         -          -       (5.0)
    -------------------------------------------------------------------------
    Balance as at
     June 30, 2009     $ 1,061.5  $    83.3  $ 1,890.2  $  (233.7) $ 2,801.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance as at December
     31, 2007          $ 1,101.9  $    97.2  $ 2,091.3  $  (118.3) $ 3,172.1
    Net income                 -          -      135.0          -      135.0
    Other comprehensive
     income (loss)             -          -          -      (48.6)     (48.6)
    Common shares
     repurchased for
     cancellation
     (note 5)              (21.8)         -      (72.9)         -      (94.7)
    Dividends paid             -          -      (76.5)         -      (76.5)
    Stock-based
     compensation              -      (10.5)      (4.0)         -      (14.5)
    -------------------------------------------------------------------------
    Balance as at
     June 30, 2008     $ 1,080.1  $    86.7  $ 2,072.9  $  (166.9) $ 3,072.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Unaudited interim consolidated statements of cash flows
    For the periods ended June 30
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------

                                         Three months            Six months
                                       ---------------       ---------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Cash flows from (used in)
     operating activities
    Net income                    $    74.2  $   112.0  $    37.9  $   135.0
    Adjustments for non-cash items    171.2      209.4      186.0      140.1
    Changes in net claims
     liabilities                        4.9      (35.2)      41.2       58.8
    Changes in other operating
     assets and liabilities           (22.3)     (45.7)     (20.2)    (135.7)
                                  -------------------------------------------
    Net cash flows from operating
     activities (note 9)              228.0      240.5      244.9      198.2

    Cash flows from (used in)
     investing activities
    Proceeds from sale of
     invested assets                1,501.5    1,208.7    2,174.5    2,609.9
    Purchases of invested assets   (1,647.2)  (1,250.5)  (2,690.0)  (2,565.7)
    Purchases of property and
     equipment and other              (22.3)     (18.2)     (52.5)     (33.0)
                                  -------------------------------------------
    Net cash flows (used in) from
     investing activities            (168.0)     (60.0)    (568.0)      11.2

    Cash flows from (used in)
     financing activities
    Common shares repurchased for
     cancellation                         -      (82.0)         -      (98.7)
    Dividends paid                    (38.3)     (37.9)     (76.6)     (76.5)
                                  -------------------------------------------
    Net cash flows used in
     financing activities             (38.3)    (119.9)     (76.6)    (175.2)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash
     and cash equivalents              21.7       60.6     (399.7)      34.2
    Cash and cash equivalents
     (overdraft), beginning of
     period                            89.0      (18.3)     510.4        8.1
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $   110.7  $    42.3  $   110.7  $    42.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Intact Financial Corporation
    Notes to unaudited interim consolidated financial statements
    (in millions of Canadian dollars, except as noted)
    -------------------------------------------------------------------------

    Note 1 - Basis of presentation

    These unaudited interim consolidated financial statements of Intact
    Financial Corporation (formerly ING Canada Inc.) ("Intact" or the
    "Company") have been prepared in accordance with Canadian generally
    accepted accounting principles ("GAAP") for interim financial statements
    and do not include all the information required for annual financial
    statements. Except as described below, these unaudited interim
    consolidated financial statements use the same accounting policies as the
    Company's audited consolidated financial statements for the fiscal year
    ended December 31, 2008 and should be read in conjunction with the
    Company's annual consolidated financial statements for the year then
    ended. Certain comparative figures have been reclassified to conform to
    the presentation adopted in the current period.


    Note 2 - Accounting policy changes

    a) Applied during the period

    Goodwill and intangible assets

    Effective January 1, 2009, the Company applied the new Canadian Institute
    of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and
    Intangible Assets. This Section replaces Section 3062, Goodwill and Other
    Intangible Assets, and Section 3450, Research and Development Costs, and
    establishes standards for the recognition, measurement and disclosure of
    goodwill and intangible assets. The provisions relating to the definition
    and initial recognition of intangible assets, including internally
    generated intangible assets, are equivalent to the corresponding
    provisions of IAS 38, Intangible Assets, of International Financial
    Reporting Standards ("IFRS").

    In applying Section 3064, the Company has reclassified certain fixed
    assets from Other assets to Intangible assets on the unaudited
    consolidated balance sheets. The amount reclassified net of amortization
    was $89.8 as at June 30, 2009, (December 31, 2008 - $79.4). This
    reclassification had no impact on the Company's net income for the
    quarter.

    Credit risk and the fair value of financial assets and financial
    liabilities

    Effective January 20 2009, the Company also applied the new Emerging
    Issues Committee ("EIC") abstract 173, Credit Risk and the Fair Value of
    Financial Assets and Financial Liabilities, EIC-173 requires an entity to
    take into account its own credit risk and that of the relevant
    counterparties when determining the fair value of financial assets and
    financial liabilities, including derivative instruments. The adoption of
    this new CICA abstract has not had a significant impact on the Company's
    results or financial condition as credit risks associated with our
    financial assets and liabilities are incorporated into the Company's
    valuation methodology.

    b)  Future accounting changes

    Business combinations, consolidated financial statements and non-
    controlling interest

    In January 2009, the CICA issued three new accounting standards: Section
    1582, Business Combinations, Section 1601, Consolidated Financial
    Statements, and Section 1602, Non-controlling interests, to converge the
    accounting for business combinations and the reporting of non-controlling
    interest to International financial reporting standards (IFRS).
    Effective January 1, 2011, the Company will apply the recommendations of
    Section 1582, Business Combinations, which replaces Section 1581,
    Business Combinations, and establishes new guidance on the recognition
    and measurement at fair value of all assets and all liabilities of the
    acquired business.

    Also effective January 1, 2011, the Company will apply Section 1601,
    Consolidated Financial Statements, and Section 1602, Non-Controlling
    Interests, which together replace Section 1600, Consolidated Financial
    Statements, and establish new guidance on the accounting and presentation
    for non-controlling interests and for transactions with non-controlling
    interest. These two new standards must be adopted concurrently with
    Section 1582.

    The Company is currently assessing the impact the adoption of these
    Sections will have on its consolidated financial statements.


    Note 3 - Invested assets and other financial instruments

    a)  Carrying value of invested assets

    The Company's invested assets are separated into three categories as
    defined by the CICA guidance on financial instruments: available for sale
    ("AFS"), designated as held-for-trading ("HFT") and loans.

                                            Designated
                                        AFS     as HFT      Loans      Total
    -------------------------------------------------------------------------
    As at June 30, 2009

    Debt securities
      Short-term notes                787.1          -          -      787.1
      Fixed income                  1,493.1    1,970.3          -    3,463.4
    Equity securities
      Preferred shares              1,462.2          -          -    1,462.2
      Common shares                   537.7      344.8          -      882.5
    Loans                                 -          -      286.5      286.5
    -------------------------------------------------------------------------
                                    4,280.1    2,315.1      286.5    6,881.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    As at December 31, 2008

    Debt securities
      Short-term notes                293.8          -          -      293.8
      Fixed income                  1,781.2    1,757.5          -    3,538.7
    Equity securities
      Preferred shares              1,220.1          -          -    1,220.1
      Common shares                   727.7       71.7          -      799.4
    Loans                                 -          -      242.3      242.3
    -------------------------------------------------------------------------
                                    4,022.9    1,829.2      242.3    6,094.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the quarter, the Company reclassified $20.1 (December 31, 2008 -
    $14.6) of investments carried at cost from Loans to Other assets.

    The risk management policies and procedures of the Company as well as
    certain disclosures required by Sections 3862 and 1535 were provided in
    the 2008 annual Management Discussion and Analysis under Section 9 and in
    notes 3, 4, 5 and 13 of the 2008 annual audited consolidated financial
    statements. The impact of changes in risk variables such as market prices
    and interest rates is described in the Risk Management section of the
    quarterly Management Discussion and Analysis which accompanies these
    financial statements.

    During the first quarter of 2009, the Company implemented a hedging
    program to significantly reduce the market risk associated with
    approximately $155.8 of common shares designated as HFT. The market value
    of these common shares at June 30, 2009 was $265.1. The related
    derivatives are settled monthly for cash and any unsettled amount is
    included in other liabilities at fair value. For further details refer to
    Section 3.1 Explanation of consolidated financial results of the
    Management Discussion and Analysis which accompanies these financial
    statements.

    b) Unrealized gains and losses

                          Designated
                                 HFT                                   Total
                            invested                                invested
                              assets      Other invested assets       assets
                         ----------------------------------------------------
                                  At    Amort-   Unreal-   Unreal-        At
                                fair      ized      ized      ized  carrying
                               value      cost     gains    losses     value
    -------------------------------------------------------------------------
    As at June 30, 2009

    Debt securities
      Short-term notes             -     787.1         -         -     787.1
      Fixed income           1,970.3   1,474.6      34.7     (16.2)  3,463.4
    Equity securities
      Preferred shares             -   1,754.3      20.3    (312.4)  1,462.2
      Common shares            344.8     599.4      34.9     (96.6)    882.5
    Loans                          -     286.5         -         -     286.5
    -------------------------------------------------------------------------
                             2,315.1   4,901.9      89.9    (425.2)  6,881.7
    Net unrealized losses                              (335.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2008

    Debt securities
      Short-term notes             -     293.8         -         -     293.8
      Fixed income           1,757.5   1,750.8      57.1     (26.7)  3,538.7
    Equity securities
      Preferred shares             -   1,742.6       1.8    (524.3)  1,220.1
      Common shares             71.7     868.4      10.5    (151.2)    799.4
    Loans                          -     242.3         -         -     242.3
    -------------------------------------------------------------------------
                             1,829.2   4,897.9      69.4    (702.2)  6,094.3
    Net unrealized losses                              (632.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loans are carried at amortized cost. Their fair value is determined using
    internal valuation models. As at June 30, 2009, these loans had a fair
    value of $304.3 (December 31, 2008 - $268.8).

    c) Positive and negative fair values of derivative financial instruments

                                                              Fair values
                                                         --------------------
                                                          Positive  Negative
    -------------------------------------------------------------------------
    As at June 30, 2009

    Where hedge accounting is applied                            -       0.7
    Where hedge accounting is not applied                      6.8      23.4
    Embedded derivatives                                         -      46.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2008

    Where hedge accounting is applied                            -       1.9
    Where hedge accounting is not applied                      9.0       2.3
    Embedded derivatives                                         -       4.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 4 - Net claims liabilities

                                            Direct                       Net
                                            claims  Reinsurers'  liabilities
                                       liabilities       share        claims
    -------------------------------------------------------------------------
    For the six months ended
     June 30, 2009

    Balance, beginning of period           4,064.9       207.0       3,857.9
    Claims incurred                        1,421.0         5.5       1,415.5
    Prior year (favourable)
     claims development                      (32.2)       11.5         (43.7)
    Increase due to changes in
     discount rate                             3.7         0.2           3.5
    Claims paid                           (1,352.7)      (18.6)     (1,334.1)
    -------------------------------------------------------------------------
    Balance, end of period                 4,104.7       205.6       3,899.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the six months ended
     June 30, 2008
    Balance, beginning of period           3,989.0       256.9       3,732.1
    Claims incurred                        1,414.4        12.8       1,401.6
    Prior year (favourable) claims
     development                             (41.4)       (1.1)        (40.3)
    Increase due to changes
     in discount rate                         10.8         0.8          10.0
    Claims paid                           (1,339.1)      (26.6)     (1,312.5)
    -------------------------------------------------------------------------
    Balance, end of period                 4,033.7       242.8       3,790.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 5 - Share capital

    a) Issued and outstanding

                                            As at June 30, 2009
                                ---------------------------------------------
                                                  Issued and
                                  Authorized     outstanding           Share
                                     (shares)        (shares)        Capital
    -------------------------------------------------------------------------
    Common shares                  Unlimited     119,906,567       $ 1,061.5
    Class A shares                 Unlimited               -               -
    Special share                          -               -               -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                            As at December 31, 2008
                                ---------------------------------------------
                                                  Issued and
                                  Authorized     outstanding           Share
                                     (shares)        (shares)        Capital
    -------------------------------------------------------------------------
    Common shares                  Unlimited     119,906,566       $ 1,061.5
    Class A shares                 Unlimited               -               -
    Special share                        One               1               -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On February 19, 2009, ING Groep completed the disposal of its entire 70%
    shareholding in the Company via the sale of 36,183,480 of the Company's
    common shares to a number of institutional investors on a private
    placement basis and the sale of 47,757,920 common shares pursuant to a
    "bought deal" secondary public offering. The Special share owned by ING
    Groep was immediately converted into one common share and was also
    disposed of through the secondary offering.

    b) Normal course issuer bid

    During the first six months of 2008, the Company repurchased 2,465,801
    common shares under its normal course issuer bid at an average price of
    $38.40 per share for a total consideration of $94.7. Total cost paid,
    including fees, was first charged to share capital to the extent of the
    average carrying value of the common shares purchased for cancellation
    and the excess of $72.9 was charged to retained earnings.


    Note 6 - Stock-based compensation

    The following table reconciles the beginning and ending balances of the
    share units outstanding for both the Company's long-term incentive plan
    ("LTIP") and employee share purchase plan ("ESPP").

                                         Three months            Six months
                                       ---------------       ---------------
    For the periods ended June 30      2009       2008       2009       2008
    -------------------------------------------------------------------------
    LTIP (share equivalents)
      Outstanding, beginning of
       period                       323,102    407,263    306,864    616,115
      Net change in estimate
       during the period            (35,604)   (52,133)   (19,366)  (260,985)
    -------------------------------------------------------------------------

      Outstanding, end of period    287,498    355,130    287,498    355,130
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LTIP (restricted common
     shares)
      Outstanding, end of period    342,731    289,236    342,731    289,236
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ESPP (restricted common shares)
      Outstanding, beginning of
       period                        98,734     73,027     89,906     66,228
      Awarded during the period      23,492     18,987     45,998     40,163
      Vested or forfeited during
       the period                   (20,659)   (14,643)   (34,337)   (29,020)
    -------------------------------------------------------------------------

    Outstanding, end of period      101,567     77,371    101,567     77,371
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 7 - Related-party transactions

    Subsequent to the disposal by ING Groep of its shareholding in the
    Company (see note 5 a)), all related-party transactions are with entities
    associated with the Company's distribution segment.

    a) Revenues and expenses

                                         Three months            Six months
                                       ---------------       ---------------
    For the periods ended June 30      2009       2008       2009       2008
    -------------------------------------------------------------------------
    Reinsurance ceded to related
     entities
      Ceded premiums earned               -        3.9          -        7.4
      Ceded claims                        -       (0.5)         -        0.1
    Expenses
      Commissions                       9.6        9.7       18.6       19.3
      Other expenses                      -        4.6        3.0        9.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b) Balance sheet amounts

                                                     June 30,  December 31,
    As at                                                2009          2008
    -------------------------------------------------------------------------
    Reinsurance payable                                     -          (0.4)
    Loans                                               192.5         127.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 8 - Debt outstanding

    The Company has an unsecured committed credit facility of $150.0
    (December 31, 2008 - committed $150.0), which may be drawn as prime loans
    at the prime rate plus a margin or as bankers' acceptances at the
    bankers' acceptance rate plus a margin. As at June 30, 2009 the Company
    had not drawn down under the facility.


    Note 9 - Additional information

    a) Consolidated statements of income

                                         Three months            Six months
                                       ---------------       ---------------
    For the periods ended June 30      2009       2008       2009       2008
    -------------------------------------------------------------------------
    Amounts included in net
    investment losses:
      Related to HFT financial
       instruments
        Gains (losses) on HFT
         securities                    72.4      (35.1)      96.4      (21.3)
        (Losses) gains on derivatives (80.4)       5.5     (108.7)      20.4
      Related to AFS financial
       instruments
        Realized gains (losses) on
         AFS securities                10.6       16.0      (88.5)      (2.7)
        (Losses) gains on embedded
         derivatives                  (36.6)      (2.2)     (41.9)      10.0
        Impairments of fixed
         income securities                -       (0.8)      (8.4)     (6.9)
        Impairments of equity
         securities                    (1.0)     (11.8)     (19.6)    (53.6)
      Other                            (0.1)      (0.3)      (0.2)     (0.4)
    -------------------------------------------------------------------------
    Net investment losses             (35.1)     (28.7)    (170.9)    (54.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    b) Consolidated statements of cash flows

                                         Three months            Six months
                                       ---------------       ---------------
    For the periods ended June 30      2009       2008       2009       2008
    -------------------------------------------------------------------------
    Expense (revenue) amounts included
     in non-cash items:
      Amortization                     10.5       10.5       20.9       19.4
      Stock-based compensation         (2.6)     (11.9)      (5.0)     (10.6)
      Employee future benefits          2.8        3.0        5.7        5.9
    Income taxes recovered            122.0       43.8      139.9       25.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 10 - Segmented information

    The Company has two reportable segments, the underwriting segment and the
    corporate and distribution segment.

    The Company's core business activity is property and casualty ("P&C")
    insurance underwriting. The underwriting segment includes two lines of
    business: personal lines and commercial lines. Personal lines include
    automobile and property while commercial lines include automobile and
    property and liability.

    Corporate and distribution segment includes the results of the Company's
    broker and other operations.

    a) Results of the Company's reportable segments

                                             Corporate     Inter-
                                                   and    segment
                                     Under-    distri-   elimina-
                                    writing     bution      tions      Total
    -------------------------------------------------------------------------
    For the three months ended
     June 30, 2009

    Revenues                        1,011.3       30.7      (18.8)   1,023.2
    Expenses                          958.1       21.0      (15.5)     963.6
    -------------------------------------------------------------------------
    Subtotal                           53.2        9.7       (3.3)      59.6
    Interest and dividend income,
     net of expenses                                                    72.7
    Net investment losses                                              (35.1)
    -------------------------------------------------------------------------
    Total income before income
     taxes                                                              97.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three months ended
     June 30, 2008

    Revenues                          996.1       29.6      (17.5)   1,008.2
    Expenses                          921.2       14.2      (15.0)     920.4
    -------------------------------------------------------------------------
    Subtotal                           74.9       15.4       (2.5)      87.8
    Interest and dividend income,
     net of expenses                                                    81.7
    Net investment losses                                              (28.7)
    -------------------------------------------------------------------------
    Total income before income
     taxes                                                             140.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                             Corporate     Inter-
                                                   and    segment
                                     Under-    distri-   elimina-
                                    writing     bution      tions      Total
    -------------------------------------------------------------------------
    For the six months ended
     June 30, 2009

    Revenues                        1,999.9       51.6      (32.3)   2,019.2
    Expenses                        1,952.3       40.2      (29.3)   1,963.2
    -------------------------------------------------------------------------
    Subtotal                           47.6       11.4       (3.0)      56.0
    Interest and dividend income,
     net of expenses                                                   145.2
    Net investment losses                                             (170.9)
    -------------------------------------------------------------------------
    Total income before income
     taxes                                                              30.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the six months ended
     June 30, 2008

    Revenues                        1,987.9       50.6      (29.8)   2,008.7
    Expenses                        1,953.7       33.1      (28.3)   1,958.5
    -------------------------------------------------------------------------
    Subtotal                           34.2       17.5       (1.5)      50.2
    Interest and dividend income,
     net of expenses                                                   167.3
    Net investment losses                                              (54.5)
    -------------------------------------------------------------------------
    Total income before income
     taxes                                                             163.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Underwriting expenses for the six months ended June 30, 2009 include $3.5
    (June 30, 2008 - $10.0) related to changes in discount rate. See note 4.

    b) Assets of the Company's reportable segments

                                             Corporate     Inter-
                                                   and    segment
                                     Under-    distri-   elimina-
                                    writing     bution      tions      Total
    -------------------------------------------------------------------------
    As at June 30, 2009

    Goodwill                           74.4       92.8          -      167.2
    Invested assets                 6,830.6       51.1          -    6,881.7
    Other                           2,767.1      360.0       (5.5)   3,121.6
    -------------------------------------------------------------------------
    Total assets                    9,672.1      503.9       (5.5)  10,170.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at June 30, 2008

    Goodwill                           74.4       86.0          -      160.4
    Invested assets                 6,782.3      253.3          -    7,035.6
    Other                           2,765.8      301.3       (5.7)   3,061.4
    -------------------------------------------------------------------------
    Total assets                    9,622.5      640.6       (5.7)  10,257.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    c) Results by line of business

                                         Three months            Six months
                                       ---------------       ---------------
    For the periods ended June 30      2009       2008       2009       2008
    -------------------------------------------------------------------------
    Direct premiums written
      Personal                        919.6      892.3    1,537.5    1,498.7
      Commercial                      328.8      325.6      584.3      581.5
    Underwriting (loss) income
      Personal                         41.8       29.5       25.7      (16.9)
      Commercial                       11.4       45.4       22.0       51.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Media Enquiries: Ian Blair, Director, External
Communications, (416) 341-1464 ext. 45251, Email: ian.blair@intact.net;
Investor Enquiries: Michelle Dodokin, Vice President, Investor Relations,
(416) 344-8044, Email: michelle.dodokin@intact.net


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890