Economical Insurance reports financial results for Second Quarter 2017

  • Increased gross written premiums by 12.8% over second quarter 2016, driven by strong personal lines growth, including contributions from Sonnet and Petline
  • Reported a combined ratio of 112.8% for the quarter, including an impact of 6.5 percentage points related to Sonnet and the replacement of our personal lines policy administration system
  • Generated a net loss of $18.5 million for the quarter

WATERLOO, ONAug. 4, 2017 /CNW/ – Economical Insurance, one of Canada’s leading property and casualty insurance companies, today announced consolidated financial results for the three and six month periods ended June 30, 2017.

“Our second quarter results continue to reflect the trends experienced in the first quarter performance. While we generated significant growth in gross written premiums stemming from broker channel personal lines, Sonnet, and Petline, the underwriting performance of our auto lines remains challenged,” said Rowan Saunders, President and CEO. “To address this, we have implemented a number of targeted rate increases, underwriting and broker management actions, and will continue to strengthen our executive leadership. Further actions are planned through the balance of the year, although they will take time to earn through our results. We were also impacted by challenging weather conditions including four separate catastrophe losses from wind and rain events. The ongoing investments in Sonnet and the replacement of our personal lines policy administration system further contributed to the increase in the combined ratio.”

Economical Insurance Consolidated Highlights ($ in millions, except as otherwise noted)

Three months ended June 30

Six months ended June 30

2017

2016

Change

2017

2016

Change

Gross written premiums1

660.6

585.4

75.2

1,149.2

1,012.1

137.1

Net earned premiums

535.8

480.7

55.1

1,057.1

962.1

95.0

Claims ratio1

74.6%

67.2%

7.4 pts

72.6%

66.6%

6.0 pts

Expense ratio1

38.2%

37.3%

0.9 pts

37.4%

36.2%

1.2 pts

Combined ratio1

112.8%

104.5%

8.3 pts

110.0%

102.8%

7.2 pts

Underwriting loss1

(68.4)

(21.6)

(46.8)

(106.1)

(27.0)

(79.1)

Investment income

26.1

50.5

(24.4)

83.8

93.1

(9.3)

Net (loss) income

(18.5)

17.1

(35.6)

(13.2)

45.6

(58.8)

As at

Jun 30,
2017

Dec 31,
2016

Change

Total equity

1,794.6

1,803.1

(8.5)

Minimum Capital Test1

259%

276%

(17) pts

 

These items are non-GAAP measures which are defined below. Claims ratio, expense ratio, combined ratio,
and underwriting loss exclude the impact of discounting.

 

Gross written premiums for the second quarter of 2017 grew by $75.2 million or 12.8% over the same quarter a year ago from a combination of organic and inorganic growth. Personal lines premiums grew by $69.3 million or 18.8% primarily due to increased auto and property policy volumes in our broker channel, new business growth from our digital direct distribution channel, Sonnet, and the acquisition of Petline. Commercial lines premiums grew by $5.9 million or 2.7% driven primarily by increased fleet business. Year-to-date, personal lines premiums grew by $122.6 million or 19.5% and commercial lines premiums grew by $14.5 million or 3.8% over the same period a year ago.

Underwriting activity for the second quarter of 2017 produced a loss of $68.4 million, resulting in a combined ratio of 112.8%, compared to an underwriting loss of $21.6 million and a combined ratio of 104.5% in the same quarter a year ago. Underwriting results were impacted by continued deterioration in auto performance, primarily in Ontario and British Columbia, which also resulted in adverse prior year claims development in the quarter. The quarter was also impacted by a number of wind and rain storms primarily impacting our property lines of business, which contributed 2.7 percentage points to the combined ratio. The second quarter of 2016 included the Fort McMurray wildfire, which contributed 7.6 percentage points to the combined ratio. We continue to make significant investments in Sonnet and the replacement of our personal lines policy administration system, which impacted the combined ratio by 6.5 percentage points, compared to 5.2 percentage points in the same quarter a year ago. We expect that these strategic investments will continue to increase operating expenses during the implementation and start-up phases, but are expected to improve our operational efficiency and profitable growth in the longer term. Year-to-date, underwriting activity produced a loss of $106.1 million, resulting in a combined ratio of 110.0%, compared to an underwriting loss of $27.0 million and a combined ratio of 102.8% in the same quarter a year ago. Year-to-date, our underwriting results were impacted by the same factors as the quarter.

Line of Business Combined Ratios

In 2017, the results of the underwriting activity of Sonnet have been included in the line of business performance, resulting in increased combined ratios, which will continue during the start-up phase. In addition, our investment in a new personal lines policy administration system has further increased the combined ratios. The collective impact of these strategic investments on the 2017 combined ratios has been noted in the table below to depict the adjusted combined ratios excluding these investments for comparative purposes.

Personal insurance

Three months ended June 30

2017
Combined
Ratio

2017 Impact
of Strategic
Investments

2017
Adjusted
Combined
Ratio2

20161

Change

Personal auto

117.8%

11.3%

106.5%

88.1%

18.4 pts

Personal property

106.8%

6.2%

100.6%

110.7%

(10.1) pts

Total personal lines

114.4%

9.8%

104.6%

94.7%

9.9 pts

Six months ended June 30

2017
Combined
Ratio

2017 Impact
of Strategic
Investments

2017
Adjusted
Combined
Ratio2

20161

Change

Personal auto

116.9%

11.6%

105.3%

94.7%

10.6 pts

Personal property

99.2%

6.3%

92.9%

99.3%

(6.4) pts

Total personal lines

111.2%

9.9%

101.3%

96.0%

5.3 pts

1 In 2016, the personal lines of business results excluded certain expenses associated with the
development and launch of Sonnet as it was in the pre-launch phase for the majority of the year.

2 This item is a non-GAAP measure which is defined below.

 

The adjusted personal auto combined ratio for the second quarter increased primarily due to continued deterioration in Ontario bodily injury, and British Columbia excess auto liability claims. This resulted in overall adverse prior year claims development for our personal auto line of business. Targeted rate increases and a number of underwriting actions have been recently implemented. Further actions to remediate this line of business are planned during the second half of 2017. These actions will take time to earn through our results.

The adjusted personal property combined ratio for the second quarter improved compared to the same quarter a year ago, primarily due to lower levels of weather-related catastrophe losses. Total catastrophe losses decreased, as the same quarter a year ago was heavily impacted by the devastating Fort McMurray wildfire (19.3 percentage points impact), while the current quarter was impacted by 8.0 percentage points of catastrophe losses stemming from four separate wind and rain events.

Overall, on an adjusted basis, personal lines produced an underwriting loss of $15.8 million compared to an underwriting profit of $16.3 million in the same quarter a year ago. Year-to-date, on an adjusted basis, personal lines produced an underwriting loss of $8.9 million compared to an underwriting profit of $24.4 million in 2016.

Commercial insurance

Three months ended June 30

Six months ended June 30

2017

2016

Change

2017

2016

Change

Commercial auto

115.5%

91.7%

23.8 pts

114.8%

97.1%

17.7 pts

Commercial property and liability

105.9%

117.1%

(11.2) pts

103.3%

108.3%

(5.0) pts

Total commercial lines

109.7%

107.5%

2.2 pts

107.9%

104.2%

3.7 pts

 

The commercial auto combined ratio for the second quarter was impacted by a significant increase in claims severity in all regions. To address the deterioration in this line of business, certain targeted rate increases have been implemented in the second quarter. Further targeted rate increases and underwriting actions are planned for the second half of 2017.

The commercial property and liability combined ratio for the second quarter improved significantly. Catastrophe losses decreased, as the same quarter a year ago was heavily impacted by the devastating Fort McMurray wildfire (17.1 percentage points impact), while the current quarter was impacted by 4.1 percentage points of catastrophe losses. There was also an increase in favourable prior year claims development in the second quarter of 2017, which was partially offset by an increase in large losses.

Overall, commercial lines produced an underwriting loss of $17.9 million compared to $12.8 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting loss of $28.8 million compared to $14.6 million in 2016. In the second quarter of 2017, under new leadership, we initiated a comprehensive review of the commercial line of business portfolio by region and product type. This ongoing review has identified some early findings, including a range of pricing, underwriting, and broker management actions, some of which were swiftly implemented during the second quarter. While we expect our actions implemented to date and further actions arising from our ongoing review will impact our policy volumes and gross written premiums, we believe these actions will improve operating performance going forward.

Investment income

Three months ended June 30

Six months ended June 30

2017

2016

Change

2017

2016

Change

Interest income

14.7

15.1

(0.4)

29.7

30.5

(0.8)

Dividend income

10.3

9.9

0.4

19.2

18.1

1.1

Total interest and dividend income

25.0

25.0

48.9

48.6

0.3

Total recognized gains on investments

1.1

25.5

(24.4)

34.9

44.5

(9.6)

Total investment income

26.1

50.5

(24.4)

83.8

93.1

(9.3)

 

Recurring investment income was stable during the second quarter of 2017, compared to the same quarter a year ago. The decline in interest income was offset by an increase in dividend income. Recognized gains decreased as an increase in yields produced unrealized losses on the bond portfolio. These were partially offset by realized gains, mainly on domestic equities.

Net income decreased by $35.6 million over the same quarter a year ago due to lower investment income, and higher underwriting losses driven largely by continued challenges in auto performance and increased spend on our strategic initiatives. Year-to-date, net income decreased $58.8 million over the same period a year ago due to these same factors.

Economical’s capital position remains strong. Total equity approximated $1.8 billion as at June 30, 2017. Economical’s minimum capital test ratio is at 259%, which remains significantly in excess of both internal capital management and external regulatory requirements as of June 30, 2017.

Forward looking statements

Certain of the statements in this press release regarding our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements, or any other future events or developments constitute forward-looking statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely”, “looking to”, or “potential” or the negative or other variations of these words or other similar or comparable words or phrases, are intended to identify 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 Economical’s actual results, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: the competitive market environment; Economical’s ability to appropriately price its products to produce an acceptable return; its ability to accurately assess the risks associated with the insurance policies that it writes; its ability to pay claims in accordance with our insurance policies; management’s ability to accurately predict future claims frequency or severity including the frequency and severity of weather-related events; the occurrence of unpredictable catastrophic events; Economical’s ability to obtain reinsurance coverage to alleviate risk; Economical’s ability to successfully manage credit risk from its counterparties; unfavourable capital market developments or other factors which may affect our investments; general economic, financial and political conditions; foreign currency fluctuations; Economical’s ability to implement its strategy or operate its business as management currently expects; Economical’s dependence on key employees; Economical’s reliance on independent brokers to sell its products; Economical’s ability to meet payment obligations as they become due; the risk of financial loss from an inadequate enterprise risk management framework; Economical’s ability to manage the appropriate collection and storage of information; Economical’s reliance on information technology and telecommunications systems; changes in government regulations; supervisory expectations or requirements, including risk-based capital guidelines; litigation and regulatory actions; success and timing of the demutualization process; the outcome of a demutualization transaction; periodic negative publicity regarding the insurance industry or Economical; Economical’s ability to uphold its independent third party ratings; and Economical’s ability to respond to events impacting its ability to conduct business as normal.

All of the forward-looking statements included in this press release are qualified by these cautionary statements. These factors are not intended to represent a complete list of the factors that could impact Economical, however, these factors should be considered carefully, and readers should not place undue reliance on the forward-looking statements we make. We are under no obligation and have no intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Definitions

Catastrophe loss

Generally, an event causing greater than 100 claims and gross losses in excess of $2 million.

Claims development

The difference between prior year end estimates of ultimate undiscounted claim costs and the current estimates for the same block of claims. A favourable development represents a reduction in the estimated ultimate claim costs during the period for that block of claims.

Discounting

To reflect the time value of money, the expected future payments of claim liabilities are discounted back to present value using the market yield rate of investments used to support those liabilities. Provisions for adverse deviation are also included when determining the discounted value.

Frequency

A measure of how often a claim is reported as a function of policies in force.

Large loss

A single claim with a gross loss in excess of $1 million.

Severity

A measure of the average dollar amount paid per claim.

Total equity

Retained earnings plus accumulated other comprehensive income.

Also included in this press release are a number of measures which do not have any standardized meaning prescribed by generally accepted accounting principles (“GAAP”). These non-GAAP measures may not be comparable to any similar measures presented by other companies.

Gross written premiums

The total premiums from the sale of insurance during a specified period.

Claims ratio

Claims and adjustment expenses (excluding the impact of discounting) during a defined period expressed as a percentage of net earned premiums for the same period.

Expense ratio

Underwriting expenses including commissions, operating expenses (net of other underwriting revenues) and premium taxes during a defined period, expressed as a percentage of net earned premiums for the same period.

Combined ratio

Claims and adjustment expenses (excluding the impact of discounting), commissions, operating expenses (net of other underwriting revenues) and premium taxes during a defined period expressed as a percentage of net earned premiums for the same period.

Adjusted combined ratio

Combined ratio excluding the impact of our investment in a new personal lines policy administration system and the results of the underwriting activity of Sonnet.

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.

Underwriting loss

Net earned premiums for a defined period less the sum of claims and adjustment expenses (excluding the impact of discounting), net commissions, operating expenses (net of other underwriting revenues) and premium taxes during the same period.

 

About Economical Insurance

Founded in 1871, Economical Insurance is one of Canada’s leading property and casualty insurers, with more than $2.2 billion in annualized premium volume and over $5.5 billion in assets as at June 30, 2017. Based in Waterloo, this Canadian-owned and operated company services the insurance needs of more than one million customers across the country.

 

Source  http://www.newswire.ca/news-releases/economical-insurance-reports-financial-results-for-second-quarter-2017-638570173.html

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Great-West confirms Financial Horizons acquisition

Great-West Life Assurance has confirmed the acquisition of leading MGA Financial Horizons Group. The deal first made headlines when it was announced in May in what has been newsworthy year for Great-West parent Great-West Lifeco. The financial services giant is the midst of a restructuring program as it repositions its business for the digital era. This plan includes shedding 1,500 jobs over a two-year period, announced in April. More positive is the purchase of Financial Horizons, which has become a leader in the space since becoming an MGA in 1999.
Operating a network of 6,600 advisors across 30 branch offices in Canada, the firm had many potential buyers, according to president and CEO John H. Hamilton. Ultimately the Great-West offer won out, although the exact details of the purchase price paid to previous owner Genstar Capital are yet to be revealed.
Acknowledging the upheaval currently underway at Great-West, president and chief operating officer, Canada, Stefan Kristjanson welcomed the addition of another successful brand to the company.
“As part of our Canada transformation, we are committed to investing in new capabilities for our business,” he said. “This strategic acquisition gives our organization a strong presence in the growing independent MGA sector of the Canadian market.”
Great-West reiterated that Financial Horizons would retain much of the independence that made it such a sought after purchase in the first place. The firm will continue to operate with its own board of directors and the existing management team will remain in place under the leadership of John H. Hamilton.

Selling life and health insurance, employee benefits and pensions to financial advisors, Financial Horizons was recently ranked the top MGA in Canada by Investor Economics. In joining the Great-West Lifeco stable of companies, it sits alongside Great-West Life, London Life, Canada Life, Irish Life, Great-West Financial and Putnam Investments, which accounts for approximately $1.3 trillion in assets under management.

 

Source  http://www.lifehealthpro.ca/news/greatwest-confirms-financial-horizons-acquisition-228962.aspx

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Republican health care bill ‘would leave 51 million uninsured’ says analysis

A new analysis of the American Health Care Act (AHCA) has backed the claim that it would mean millions more people would be left uninsured.

The Congressional Budget Office (CBO), a non-partisan congressional group which scores budgetary legislation, said that the AHCA as it is would reduce the cumulative federal deficit by $119m over the period to 2026.

The analysis also said that legislation would pave the way for lower premiums for individual insurance but added that that was “in part because the insurance, on average, would pay for a smaller proportion of health care costs.”

By 2018, 14 million more people would be uninsured under the AHCA than under the ACA, the CBO estimated, with that number rising to 19 million in 2020 and then 23 million in 2026.

“In 2026, an estimated 51 million people under age 65 would be uninsured, compared with 28 million who would lack insurance that year under current law.” The CBO’s report read.

Republican Speaker of the House of Representatives, Paul Ryan, thought of as the main figure behind the bill, said that “again confirms that the American Health Care Act achieves our mission: lowering premiums and lowering the deficit. It is another positive step toward keeping our promise to repeal and replace Obamacare.”

The Affordable Care Act is often known as Obamacare after it chief sponsor, former president Barack Obama. During his presidential campaign, US President Donald Trump repeatedly pledged to repeal the ACA.

The AHCA currently faces an uphill battle to get through the Senate after being rushed through the House of Representatives.

Democratic Senator Patrick Leahy, Vice Chairman of the Senate Appropriations Committee, said that the AHCA would “make it more difficult for families and individuals needing maternity, opioid addiction treatment and mental health care to afford the medical help they need, piling on ‘thousands of dollars’ in extra out-of-pocket charges in states using waivers.”

“It is a massive tax cut for the rich, disguised as a health plan.” Leahy said, going on to say: “It can’t be fixed. Senate Republicans should work with Democrats to improve the ACA and should scrap this abomination.”

 

Source  http://www.ibtimes.co.uk/republican-health-care-bill-would-leave-51-million-uninsured-says-analysis-1623248

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Flood Re covers 53,000 policies in six months

Flood Re has backed 53,000 policies in its first six months of operation. It was set up to provide insurance for properties at risk of flooding that would otherwise find cover hard to obtain.

here were 16 insurers signed up at its April launch but now 41 have joined, who between them represent 90% of the overall home insurance market.

Chief executive Brendan McCafferty said: “Customers with the 53,000 policies backed by Flood Re are now able to access more affordable cover, having previously been, in many cases, locked out of the market.

“However we know that lots more needs to be done to ensure that as many people as possible are able to access more affordable home insurance cover. As the weather begins to turn and the threat of flooding increases, consumers should check the Flood Re website to see which insurance providers are participating and find out more about the scheme.”

James Dalton, director of general insurance policy at the Association of British Insurers, said Flood Re showed the industry’s commitment to making affordable insurance accessible, even in high-flood-risk areas.

“Flood Re’s benefits will continue to expand over time and we would encourage those who haven’t done so already to shop around to see how the new competitive market can help them,” he said.

Flood Re said it had estimated that, over time, around 350,000 homes would benefit from its promotion of a competitive insurance market in which insurers can place the flood-risk element of domestic property insurance with Flood Re at a premium linked to council tax bands.

Ratings agency Standard and Poor has given Flood Re a preliminary rating of A-, signifying a stable outlook.

Source  http://www.theactuary.com/news/2016/10/cyber-breaches-paramount-in-transportation-industry-says-new-report/flood-re-covers-53000-policies-in-six-months/

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Is the insurance industry on the verge of a dive?

The industry is under stress, traditional profit bases are dry, competition is fierce. Is the insurance world one trigger event away from a dive?

Insurance Business spoke to two experienced brokers who shared some thoughts on the state of the industry – and what could be lurking around the corner.

Wholesale broker Don Privett, executive vice president at Worldwide Facilities, said he’s worked through three “cycles” and he senses we could be on the verge of another turning point.

“Recently you’ve been hearing things like, ‘people need to get used to lower margins’, but what I sense right now is, and what I’ve sensed in other ones [cycles], is a sense of fear in the underwriters that they can’t find profitable business and at the same time they have to write some premium,” he explained. “It usually ends up with a broadening of policy terms to be, quote, ‘competitive’.

“I’ve been doing this for 42 years, so I’ve seen three cycles. This will be the third, effectively. A cycle will be: business will be highly competitive; then there will be a correction. And the correction is often nothing that people will predict, but there are basically some fundamental underlying things that are going on that kick the swing around.”

In terms of the next dip, “there’s got to be a trigger”, Privett said. Predicting that trigger, though, is the million dollar proposition.

The first cycle Privett experienced was in the 1970s into the mid-80s, “and that was when people were underpricing the [P&C] product significantly for market share, or whatever the reason was … And then there was a massive correction when there was a lot of defaults of insurance companies, particularly reinsurance companies.” At the time of that dive there would have been about 100 reinsurers in the market, he said, whereas now there are just “13 or 14”.

Following that was “a high degree of prosperity” from the late-80s through the 90s, with “the long decline until 2001 when we had 9/11,” he said.

“I think of it like mass psychology – where everyone believed this was the way it was going to be and it was never going to change,” he elaborated. “And then you have 9/11 which was a significant event, but it was also at the bottom of a market cycle. So, pricing was too cheap and people weren’t making money.

“Now we’re 16 years later and, other than a couple of blips from some hurricanes, effectively we’ve been still going down on rates [again].”

The current merger frenzy taking place throughout the industry could potentially be a cause for wider concern, Privett said.

“There are financially-stressed companies out there,” he explained. “As you can see from the acquisitions that are going on, a lot of companies being purchased – [but] what’s within those businesses and how clean those books of business are, is probably for the ‘buyer beware’, you know.

“We’re at that point where the rates are bouncing on the bottom, and there’s still an enormous amount of pressure to lower premiums, because cheap sells. Normally what happens is that anybody who is growing their market share at the bottom of the market would probably end up with a pretty severely depressed book of business with adverse results. So from an analyst’s point of view, probably whoever is growing the most right now is the one you’ve got to worry about.”

Mark Kunney, president of North American operations of Integro, a brokerage and specialty risk management firm, agreed the current acquisition trend could potentially create problems down the track.

Insurers were buying up other firms “to minimize the expenses across a wider base of premium … and have better offerings for their clients”, Kunney said. But that carried its own risk.

“Eventually you get to a tipping point there, where you don’t have enough competition in a segment,” he noted. “That’s not happened yet, but with enough … insurance and profit challenges that may be something to look on the horizon for.

“I don’t know that there is so much pressure that the prices are going to skyrocket – I don’t think that there’s any changes in the market that are coming in the near future. But you pay attention to the macro trends and try to keep your eye on the horizon as to what could happen and what are the possible outcomes. There’s a lot of change afoot that will change the nature of the underlying risk, and also introduce new risks at the same time.”

Source http://www.insurancebusinessmag.com/us/news/breaking-news/is-the-insurance-industry-on-the-verge-of-a-dive-67380.aspx

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