Economical Insurance reports financial results for Second Quarter 2012
Grew gross written premiums by 3.1%
Improved underwriting results by $24.7 million
Improved combined ratio by 6.0 percentage points to 93.6%
Increased second quarter net income by $16.5 million
Increased total mutual policyholders' equity by $81.6 million since 2011 year end
WATERLOO, ON, Aug. 23, 2012 /CNW/ - Economical Insurance ("Economical"), one of Canada's leading property and casualty insurance companies, today announced consolidated financial results for the three months and six months ended June 30, 2012.
Economical reported consolidated net income of $39.7 million for the second quarter of 2012 compared to $23.2 million a year ago. Economical posted a combined ratio of 93.6% for the second quarter, a significant improvement of 6.0 percentage points from the same quarter a year ago. Year to date net income for the first half of 2012 increased $28.5 million to $80.6 million, with a combined ratio of 95.1% compared to 98.8% in 2011.
"Our second quarter results show that Economical is continuing to deliver strong profitable growth," said Karen Gavan, president and CEO. "The company registered a 71% increase in net income over the same quarter of 2011, while maintaining strong growth trends in gross written premiums and mutual policyholders' equity. While favourable weather conditions in 2012 have supported our performance, we continue to position our business for sustained profitable growth and a successful demutualization."
Economical's total mutual policyholders' equity was $1,381.7 million at June 30th, a 6.3% increase in the first six months of 2012.
"We continue to have confidence in the progress being made by the federal Department of Finance towards establishing a regulatory framework for demutualization," Gavan said, "In the meantime, we continue to prepare internally to ensure we are ready to proceed with demutualization as soon as the regulations are available."
Economical Insurance Consolidated Highlights*
|($ in millions, except as otherwise noted)|
|Gross written premiums||513.8||498.4||15.4||894.8||859.0||35.8|
|Total mutual policyholders' equity||1,381.7||1,300.1||81.6|
*Note: Claims ratio, combined ratio and underwriting income exclude the impact of discounting.
Gross written premiums for the second quarter of 2012 were $513.8 million, $15.4 million higher than a year ago. The Company continues to grow in both personal and commercial lines, particularly in the Western Region. Through the first six months of 2012, gross written premiums have grown 4.2% over the same period in the prior year.
Underwriting results for the second quarter improved $24.7 million over the same quarter in 2011, which translated into a substantial 7.0 percentage point improvement in the claims ratio. The improved claims ratio was driven by relatively benign weather conditions and the absence of weather-related catastrophic losses in the quarter, compared to $26.2 million in the prior year. Offsetting the improvement in claims costs was a 1.0 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.
The combined ratio for the six months ended June 30, 2012 was 95.1%, a 3.7 percentage point improvement over the prior year. The year to date result was also aided by the mild weather conditions and lack of weather-related catastrophic losses, combined with stronger personal lines underwriting performance reflective of the improved quality of the underlying book of business.
Economical's personal auto business remains strong, producing a second quarter combined ratio of 82.8%, compared to 91.0% in the same quarter a year ago. 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 94.1% in the second quarter of 2012, a 20.1 percentage point improvement over the prior year. Favourable weather conditions contributed to improved personal property results across the country as weather- related catastrophic losses of $12.5 million experienced in the second quarter of 2011 did not reoccur. Overall the personal lines business produced an underwriting profit of $59.8 million during the first half of 2012, a $42.4 million improvement over the same period a year ago.
Commercial auto recorded a second quarter underwriting loss of $4.6 million compared to an underwriting profit of $3.1 million for the same quarter in 2011. An increase in severity of losses year-over-year continues to impact the results in this line of business. The commercial property business recorded an underwriting loss of $3.5 million, although this was an improvement of $2.0 million over the same quarter in 2011. The improved results were supported by the benign weather conditions, although an increase in large losses and continuation of competitive market conditions continue to restrict performance. Overall the commercial lines business recorded an underwriting loss of $19.5 million during the first half of 2012, resulting in a marginally higher combined ratio of 106.3%, compared to 102.5% a year ago.
Discount rates fell during the second quarter negatively impacting the combined ratio by 2.2 percentage points, or $8.9 million. The effect of discounting on claims liabilities was offset by recognized investment gains of $12.2 million on the matched bond portfolio during the quarter. However, for the first six months of 2012 discounting positively affected the discounted combined ratio by 0.9 percentage points or $7.1 million. This impact was offset by recognized investment losses of $4.0 million on the matched bond portfolio during the first half of the year.
Investment income decreased $19.7 million over the second 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 second quarter of 2012, compared to the same quarter in 2011. For the six months ended June 30, 2012, investment income has declined $9.7 million compared to the first half of 2011. Market yields for the first six months of 2012 have increased compared to the first half of 2011. This has resulted in unrealized losses on the matched bond portfolio on a year to date basis in 2012, compared to unrealized gains during the first six months of 2011. Offsetting these unrealized losses in 2012 are higher realized gains on Economical's equity portfolio. Overall investment quality remains strong with over 81% 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 by $81.6 million during the first half of 2012. Economical's minimum capital test ratio remains very strong at 285.1% as of June 30, 2012.
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.
|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 $1.7 billion in premiums and $4.6 billion in assets. 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.
Economical Insurance conducts business under the following brands: Economical Insurance, Economical, Western General, Economical Select, Perth Insurance, Federation Insurance and Economical Financial.
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