Waterloo, ON – Economical Insurance, one of Canada’s leading property and casualty insurance companies, today announced consolidated financial results for the three months and nine months ended September 30, 2012.
Highlights
- Grew gross written premiums by 7.4%
- Improved underwriting results by $12.4 million
- Improved combined ratio by 3.1 percentage points to 98.9%
- Increased third quarter net income by $27.6 million
- Increased total mutual policyholders’ equity by $123.2 million since 2011 year end
Economical reported consolidated net income of $29.0 million for the third quarter of 2012 compared to $1.4 million a year ago. Year to date net income for 2012 increased $56.0 million to $109.5 million. For the third quarter, Economical posted a combined ratio of 98.9%, an improvement of 3.1 percentage points from the same quarter a year ago. Year to date combined ratio for 2012 is 96.4% compared to 99.8% in 2011.
“Our third quarter results show that Economical is generating strong profitable growth in 2012,” said Karen Gavan, president and CEO. “We are steadily improving our underwriting profitability as we grow our personal and commercial businesses, demonstrating that our focus on underwriting profitability is delivering results. In fact, we have now produced underwriting profits in six of the last seven quarters, the only exception being a year ago due to the Goderich tornado. Despite these strong and improving results, it is critical that we take steps now to strengthen our operations, in order to sustain our profitability and competitiveness into the future. We are streamlining our operations to increase productivity, reduce costs and improve our service to our broker partners and customers.”
Economical’s total mutual policyholders’ equity has increased 9.5% in the first nine months of 2012 to stand at $1,423.3 million as of September 30.
Economical Insurance Consolidated Highlights*
($ in millions, except as otherwise noted)
| Q3 2012 |
Q3 2011 |
Variance | YTD 2012 |
YTD 2011 |
Variance | |
| Gross written premiums | 462.5 | 430.8 | 31.7 | 1,357.3 | 1,289.8 | 67.5 |
| Claims ratio | 64.9% | 67.9% | (3.0)% | 61.5% | 65.6% | (4.1)% |
| Combined ratio | 98.9% | 102.0 | (3.1)% | 96.4% | 99.8% | (3.4)% |
| Underwriting income (loss) | 4.6 | (7.8) | 12.4 | 44.9 | 2.2 | 42.7 |
| Investment income | 35.3 | 51.8 | (16.5) | 97.7 | 123.9 | (26.2) |
| Net income | 29.0 | 1.4 | 27.6 | 109.5 | 53.5 | 56.0 |
| Sept. 30, 2012 | Dec. 31, 2011 | Variance | ||||
| Total mutual policyholders’ equity | 1,423.3 | 1,300.1 | 123.2 |
*Note: Claims ratio, combined ratio and underwriting income exclude tde impact of discounting.
Gross written premiums for the third quarter showed significant growth of $31.7 million, or 7.4%, over the same quarter a year ago. Economical continues to grow strongly in both personal and commercial lines. Through the first nine months of 2012, gross written premiums have grown 5.2% over the same period in the prior year. This growth has been primarily driven by both volume and rate increases for personal and commercial property.
Underwriting results for the third quarter improved $12.4 million over the same quarter in 2011. The improvement in the combined ratio was primarily a result of a decline in weather-related catastrophic losses compared to the third quarter of 2011. For the third quarter of 2012 the Company experienced weather-related catastrophic losses of $16.3 million, from several storms primarily in Alberta, compared to $31.3 million in 2011, which included $25.0 million from the Goderich tornado. Excluding these catastrophic losses the combined ratio for the quarter was 95.0%, up 0.8% compared to a year ago.
The combined ratio for the nine months ended September 30, 2012 was 96.4%, a 3.4 percentage point improvement over the prior year. The year to date result is due to extremely strong personal lines results reflective of the decline in weather-related catastrophic losses, the improved quality of the underlying book of business and strong Ontario personal auto results. Offsetting the improvement in claims costs was a 0.7 percentage point increase in the expense ratio, driven primarily by higher commissions due to a change in the mix of business and improved underwriting profitability.
Economical’s personal auto business produced a third quarter combined ratio of 92.1%. Ontario personal auto continues to contribute strongly to the improved personal auto performance, as a result of enhanced claims management, improved risk selections and, to a lesser degree, the favourable impact of reforms. Personal property recorded a combined ratio of 105.8% in the third quarter of 2012, a 7.9 percentage point improvement over the prior year. While weather-related catastrophic losses were below the level of 2011, they still contributed 6.7 percentage points to the third quarter combined ratio. Overall the personal lines business produced a combined ratio of 91.0% during the first nine months of 2012, a 4.4 percentage point improvement over the same period a year ago.
Commercial auto recorded a third quarter combined ratio of 94.0%, a 14.6 percentage point improvement over the same quarter a year ago. A decrease in third quarter severity year-over-year contributed to the improvement in the combined ratio and is a noted reversal in the trend experienced throughout the first half of 2012. The commercial property business recorded an underwriting loss of $7.5 million, an improvement of $12.7 million over the same quarter in 2011. The improved results were supported by the reduction in weather-related catastrophic losses in the quarter year-over-year. Overall the commercial lines business posted a combined ratio of 105.0% during the first nine months of 2012, a 2.0 percentage point improvement over the prior year.
Discount rates fell during the third quarter negatively impacting the combined ratio by 0.6 percentage points, or $2.5 million. The effect of discounting on claims liabilities was offset by recognized investment gains of $4.0 million on the matched bond portfolio during the quarter. However, for the first nine months of 2012 discounting positively affected the discounted combined ratio by 0.4 percentage points or $4.5 million. This impact was offset by recognized investment losses of $0.1 million on the matched bond portfolio during the first nine months of the year.
Investment income decreased $16.5 million over the third quarter of 2011 due primarily to lower levels of unrealized gains on the matched bond portfolio. The lower level of unrealized gains was the result of a proportionately smaller decline in market yields during the third quarter of 2012, compared to the same quarter in 2011. For the nine months ended September 30, 2012, investment income has declined $26.2 million compared to 2011. Market yields for the first nine months of 2012 have remained relatively flat, compared to the large decline experienced during the same period a year ago. This has resulted in $0.1 million of recognized losses on the matched bond portfolio on a year to date basis in 2012, compared to recognized gains of $60.6 million during the first nine months of 2011. Offsetting the small recognized losses in 2012 are higher realized gains on Economical’s equity portfolio of $27.3 million, compared to gains of $7.7 million during the first nine months of 2011. Overall investment quality remains strong with over 78% of total investments held in high quality government and corporate bonds, with the balance primarily held in common and preferred shares.
Economical’s capital position continues to strengthen and total mutual policyholders’ equity has increased significantly by 9.5% or $123.2 million during the first nine months of 2012. Economical’s minimum capital test ratio remains very strong at 291% as of September 30, 2012.
On October 22, 2012, Economical announced the latest steps in its business transformation program, resulting in the reduction of 145 positions at 14 offices across the country, improving the effectiveness and efficiency of a number of operational roles, processes and support functions. Economical will recognize the costs associated with the staff reduction, of approximately $6.8 million, in the fourth quarter financial results.
Forward-looking statements
This document may contain forward looking statements that involve risks and uncertainties. Economical’s actual results could differ materially from these forward looking statements as a result of various factors.
Definitions
Combined ratio
Claims and adjustment expenses (excluding the impact of discounting), commission expenses and premium taxes during a defined period expressed as a percentage of net premiums earned for the same period.
Discounting
To reflect the time value of money, claims liabilities are discounted using the market yield rate of the investments used to support those liabilities (matched investments). Provisions for adverse deviation are also included when determining the discounted value.
Minimum capital test
A regulatory formula, defined by The Office of the Superintendent of Financial Institutions, that is a risk-based test of capital available relative to capital required.
About Economical Insurance
Founded in 1871, Economical Insurance is one of Canada’s leading property and casualty insurers, with more than $1.7 billion in premiums and $4.7 billion in assets. Based in Waterloo, this Canadian-owned and operated group services the insurance needs of more than one million customers through 17 branches and service offices across the country. In 2010, Economical announced its decision to become the first federally-regulated mutual property and casualty insurance company to demutualize. Economical is currently reviewing strategic options and will submit a comprehensive demutualization proposal for mutual policyholder approval after the federal government’s completion of demutualization regulations.
