Canada’s property and casualty insurance sector has been struggling for the past several years, mainly due to fast-rising personal automobile claims in the Greater Toronto Area, as well as large increases in property claims from water damage, soft markets on the commercial side and low interest rates, which have dampened investment income.

Nevertheless, some P&C firms, such as EGI Financial Holdings Inc. and Intact Financial Corp. , both based in Toronto, are coping well — and some stock analysts have “buy” recommendations on these companies’ stocks.

The two firms operate in different parts of the P&C sector: Intact offers standard products; EGI is a non-standard insurer, providing policies for individuals who can’t qualify for standard policies.

Ontario’s provincial government had implemented reforms for auto insurance on Sept. 1, 2010. Although this may help, it doesn’t deal with the fraud that has made the GTA a nightmare for auto insurers.

Still, Mark Tullis, Intact’s chief financial officer, is optimistic that the reforms will help — both in themselves and as aids for addressing fraud-related issues, such as allowing longer times to settle claims. Intact has moved 40 people from sales to investigating claims.

Steve Dobronyi, EGI’s CEO, is less optimistic. He says EGI will focus on markets other than the GTA, where EGI has been decreasing its underwriting.

Fraud is less of an issue in the rest of Ontario and in most other provinces, although caps on premiums in Alberta and in Newfoundland and Labrador have prompted EGI — which must charge high premiums to make money — to stop doing business in those jurisdictions.

EGI and Intact both provide commercial insurance, and both see opportunities in that sector. EGI is building its capabilities for accident and health coverage for small-business employers. Intact, which has a large share of the small-business market, is moving into the mid-sized space.

Intact also offers home insurance and is coping with increases in water-damage claims by offering different rates, which depend on the house’s location (which alters the odds of incurring water damage) and whether the basement has been renovated.

Here’s a closer look at the two firms. (Note that the year-over-year figures aren’t strictly comparable because Canadian publicly traded companies are now required to use international financial reporting standards, which differ from the Canadian generally accepted accounting principles used for year-earlier figures. However, in the case of P&C firms, the difference between IFRS and Canadian GAAP isn’t material enough to make comparisons invalid.)@page_break@> EGI Financial Holdings Inc. ’s 12.8 million outstanding shares closed at $8.85 on May 10. Fred Westra, an analyst with Industrial Alliance Securities Inc. in Montreal, has a “buy” recommendation on the stock, with a 12-month target price of $11.

Tom McKinnon, an analyst with BMO Nesbitt Burns Inc. in Toronto, is less enthusiastic, rating the stock at “market perform” with a target price of $10.

Both analysts believe the company’s actions in 2010 — including instituting six-month maximum policy terms, which allows EGI to roll out rate increases on renewals faster — have restored profitability. However, McKinnon thinks achieving the growth that EGI’s management expects could be challenging.

EGI is interested in acquiring another P&C company or a managing general agency that distributes P&C products, in the $25 million-$50 million range, which EGI can afford as it has no debt.

Net income was $9 million in the year ended March 31 on revenue of $183 million, vs earnings of $3 million and revenue of $180 million a year earlier.

> Intact Financial Corp. has a long history of generating underwriting profits and increasing earnings and quarterly dividends, including an increase in the most recent quarter to 37¢ from 34¢.

Analysts with RBC Dominion Securities Inc. in Toronto, as well as McKinnon, believe the stock will “outperform” the market and have 12-month price targets of $58 and $57, respectively. The 109.6 million outstanding shares closed at $51.54 on May 10.

“With improving fundamentals, both for Intact and the industry,” says McKinnon, “superior market positioning, early signs of hardening in commercial markets in which Intact operates and a disciplined approach to Ontario auto, specifically in the GTA, Intact remains a good growth story.”

DS adds that Intact’s strong capital ratios could lead to acquisitions and share buybacks.

Analysts with both Canaccord Gen-uity Inc. and TD Newcrest, a division of TD Securities Inc. , have a “hold” rating on the stock, with a price target of $53 and $52, respectively.

TD Newcrest analysts don’t expect an acquisition to happen quickly, nor a hardening of commercial insurance prices this year.

Canaccord analysts feel the current stock price adequately reflects EGI’s long-term return on equity potential of 15%-17%.

Net income was $512 million on revenue of $4.9 billion for the year ended March 31, vs $283 million in earnings on revenue of $4.4 billion a year earlier. IE