Economical Insurance reports financial results for Fourth Quarter and Full Year 2015

  • Delivered the highest levels of both gross written premiums and net income for any year in our company's history
  • Increased gross written premiums by 1.1% over fourth quarter 2014 and 2.3% over full year 2014
  • Recorded a combined ratio of 98.5% for the fourth quarter and 97.4% for full year 2015
  • Generated net income of $41.9 million for the fourth quarter and $176.0 million for full year 2015
  • Increased total equity by $97.9 million since December 31, 2014 to a record $1.78 billion

WATERLOO, ON, Feb. 19, 2016 /CNW/ - Economical Insurance, one of Canada's leading property and casualty insurance companies, today announced consolidated financial results for the three months and full year ended December 31, 2015.

"As we prepare for our future as a public company, we are delighted by our quarterly and record full-year performance," said Karen Gavan, president and CEO. "Economical achieved a significant milestone in 2015 with gross written premiums for the year exceeding $2 billion for the first time in our history. This substantial achievement comes despite taking corrective underwriting and pricing actions and after the impact of mandated Ontario auto rate decreases. Record full-year net income more than doubled on the back of our strong underwriting performance, which benefited from an encouraging improvement in the profitability of our commercial property and liability line of business. As part of our strategy to drive profitable growth, we are investing heavily in the development of a multi-channel distribution platform. The investment in the replacement of our policy administration system will support both a separately branded direct-to-consumer distribution channel and our existing core broker channel."  

Economical Insurance Consolidated Highlights   

($ in millions, except as otherwise noted)







Three months ended
December 31


Year ended  
December 31



2015

2014

Change

2015

2014

Change








Gross written premiums

498.0

492.5

5.5

2,008.4

1,963.0

45.4

Net premiums earned

481.4

468.0

13.4

1,905.7

1,845.3

60.4

Claims ratio*

65.7%

67.2%

(1.5) pts

64.1%

69.4%

(5.3) pts

Expense ratio*

32.8%

32.3%

0.5 pts

33.3%

32.7%

0.6 pts

Combined ratio*

98.5%

99.5%

(1.0) pts

97.4%

102.1%

(4.7) pts

Underwriting income (loss)*

7.2

2.5

4.7

48.8

(38.4)

87.2

Investment income

47.7

52.3

(4.6)

179.5

164.2

15.3

Net income

41.9

38.7

3.2

176.0

84.2

91.8








As at






December
31, 2015

December
31, 2014












Total equity

1,779.0

1,681.1

97.9




Minimum Capital Test

285%

295%

(10.0)pts












Note: *Claims ratio, expense ratio, combined ratio and underwriting income exclude the impact of discounting and are non-GAAP measures which are defined below.

Gross written premiums for the fourth quarter 2015 grew by $5.5 million, or 1.1%, over the same quarter a year ago. Personal lines premiums grew by $18.7 million, or 6.7% over the same quarter a year ago. This growth was primarily driven by increased auto policy volumes in Ontario, Alberta and BC, as well as continued growth in personal property primarily driven by targeted rate increases and increased policy volumes. Commercial lines premiums declined by $13.2 million, or 6.2%, over the same quarter a year ago. The overhaul of our commercial pricing strategy has continued to result in decreased policy volumes which more than offset targeted rate increases. Year-to-date, personal lines premiums grew by $65.1 million or 5.5% while commercial lines premiums declined by $19.7 million or 2.5% over the same period a year ago.

Underwriting activity for the fourth quarter 2015 produced a $7.2 million underwriting profit, resulting in a combined ratio of 98.5%, compared to an underwriting profit of $2.5 million and a combined ratio of 99.5% in the same quarter a year ago. The strong operating performance was driven by the improved performance of our commercial lines and a reduction in catastrophe and large losses. This was somewhat offset by a strengthening of reserves for Ontario auto accident benefits and to reflect our current views on Ontario auto reforms implemented in 2015, in light of recent court decisions.

Infrastructure and operational investments, including costs associated with the replacement of our policy administration system and costs to support our multi-channel distribution platform, impacted the fourth quarter 2015 expense ratio by 3.0 percentage points and 2.1 percentage points year-to-date. This compares to 0.6 percentage points and 0.3 percentage points for the comparable prior year periods. We believe these investments will drive profitable growth and further improve our operational efficiency in the longer term. Economical's business transformation program was completed during the fourth quarter of 2014. The impact of the restructuring costs on the combined ratio was an increase of 0.2 percentage points for the fourth quarter 2014 and 0.7 percentage points for the year ended December 31, 2014. 





Combined Ratio*





Three months ended
December 31


Year ended
December 31



2015

2014

Change

2015

2014

Change








Personal auto

97.6%

98.5%

(0.9)pts

94.7%

97.5%

(2.8)pts

Personal property

79.2%

80.0%

(0.8)pts

88.0%

96.1%

(8.1)pts

Total personal lines

92.1%

92.9%

(0.8)pts

92.7%

97.1%

(4.4)pts








Commercial auto

101.9%

108.1%

(6.2)pts

92.9%

95.5%

(2.6)pts

Commercial property and liability

101.0%

110.7%

(9.7)pts

103.5%

117.6%

(14.1)pts

Total commercial lines

101.3%

109.8%

(8.5)pts

99.9%

109.9%

(10.0)pts

Note: *The above combined ratios exclude costs for certain infrastructure and operational investments.

The personal auto combined ratio improved over the same quarter a year ago due to a decrease in large losses and improved loss development, somewhat offset by an increase in claim frequency. The personal property combined ratio improved over the same quarter a year ago driven by targeted rate increases. We continued to benefit from benign weather conditions in the fourth quarter. Overall, personal lines produced an underwriting profit of $24.0 million compared to $20.2 million in the same quarter a year ago. Year-to-date, personal lines produced an underwriting profit of $86.5 million compared to $32.8 million in 2014. This significant improvement was driven by both auto and property lines, with property in particular recording a strong operating performance due to targeted rate increases and favourable weather conditions throughout the year.

The commercial auto combined ratio improved over the same quarter a year ago primarily due to decreased claim severity, particularly in Ontario, and decreased claim frequency, particularly in Alberta. The commercial property and liability combined ratio significantly improved over the same quarter a year ago as underwriting and pricing actions began to take hold. Benign weather conditions also contributed to the improved performance. Overall, commercial lines produced an underwriting loss of $2.4 million compared to $17.7 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting profit of $1.5 million compared to an underwriting loss of $71.2 million in 2014. Our commercial auto book of business sustained strong year over year performance. We also saw a substantial improvement in commercial property and liability, which benefited from the underwriting and pricing actions taken in 2014 and 2015, as well as favourable weather conditions throughout the year.          

Investment income decreased from $52.3 million in the fourth quarter a year ago to $47.7 million. A decrease in interest income was offset by an increase in dividend income as we continue to increase our investments in high quality common and preferred stocks to optimize our portfolio performance. The decline in bond yields in the fourth quarter was less than in the same quarter a year ago, resulting in lower recognized gains on the bond portfolio. Investment quality remains strong with more than 73% of total investments held in government and investment-grade corporate bonds as at December 31, 2015. The balance of investments is primarily held in common and preferred shares of large, well-established companies.

Net income increased by $3.2 million over the same quarter a year ago. Net income for the full year 2015 more than doubled from $84.2 million to a record $176.0 million driven by stronger underwriting performance and increased investment income.

Economical's capital position remains strong. Total equity was a record $1.78 billion at December 31, 2015, an increase of $97.9 million, or 5.8% since December 31, 2014. This increase is despite an other comprehensive loss of $78.1 million (net of tax) for the year ended December 31, 2015, primarily related to a reduction in unrealized investment gains due to investment market conditions. Economical's minimum capital test ratio is at 285%, which remains significantly in excess of both internal capital management and external regulatory requirements as of December 31, 2015.  

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 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


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.


Claims ratio

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



Large loss

A gross loss in excess of $1 million



Catastrophe loss

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



Underwriting income

Net premiums earned 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.



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.



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 $2.0 billion in annualized premium volume and over $5.3 billion in assets as at December 31, 2015. Based in Waterloo, this Canadian-owned and operated company services the insurance needs of more than one million customers across the country.

SOURCE Economical Insurance

For further information: Media Inquiries: Doug Maybee, manager, public and media relations, Economical Insurance, (T) 519.570.8249, (C) 519.404.0989, doug.maybee@economical.com; Stakeholder Relations Inquiries: Max Weis, vice-president, corporate development, Economical Insurance, (T) 519.570.8291 (Waterloo), (T) 647.260.3679 (Toronto), max.weis@economical.com

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