- Grew gross written premiums by 5.1%
- Generated underwriting income* of $13.4 million
- Maintained a strong combined ratio* of 96.9% for the quarter
- Increased total mutual policyholders' equity by $48.1 million, to now exceed $1.5 billion
WATERLOO, ON, May 8, 2013 /CNW/ - Economical Insurance ("Economical"), one of Canada's leading property and casualty insurance companies, today announced consolidated financial results for the three months ended March 31, 2013.
Economical reported consolidated net income of $26.9 million for the first quarter of 2013 down $13.6 million from a year ago due largely to a reduction in realized gains. However, including other comprehensive income, Economical increased mutual policyholders' equity by $48.1 million, a $7.3 million increase over the first quarter of 2012. The company maintained a strong combined ratio of 96.9%, 0.3 percentage points higher than the very strong same quarter a year ago.
"Our first quarter results show that the company continues to make real progress on its profitable growth strategy. The combined ratio remains strong while our gross written premiums continue to grow, reflecting our focus on maintaining underwriting discipline," said Karen Gavan, president and CEO. "At the same time we are investing significantly in transforming the business to ensure the sustainability of Economical's competitiveness for the longer-term."
Commenting on the demutualization process Gavan said, "We need a level playing field with our competitors to achieve our vision of Economical becoming the leading property and casualty insurance company in Canada. Although we do not yet have the regulations we need to proceed with our demutualization, we have actively pursued discussions with the Federal Government as they work to develop those regulations, with a view to ensuring a framework for demutualization that works for Economical."
Economical Insurance Consolidated Highlights*
|($ in millions, except as otherwise noted)|
|Gross written premiums||400.4||381.0||19.4|
| March 31,
| December 31,
| Total mutual
*Note: Claims 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 first quarter grew by $19.4 million, or 5.1%, over the same quarter a year ago. This is the sixth consecutive quarter of top line growth for Economical and continues to build on the significant growth achieved throughout 2012. This growth has been driven by volume increases across all lines of business, further supported by an increase in average premiums for all lines with the exception of personal auto.
Underwriting results for the first quarter remained strong, producing a $13.4 million profit while the combined ratio was only marginally higher than the same quarter a year ago at 96.9%. The claims ratio increased 2.2 percentage points over the prior year as a result of an increase in the frequency of large losses during the first three months of 2013 and a return to more normal winter weather conditions. This was offset by a 1.9 percentage point reduction in the expense ratio for the first quarter driven by a combination of lower overall commissions and recurring operating expenses, as well as the impact of net earned premium growth.
Economical's personal auto business produced a first quarter combined ratio of 90.8%, a 1.6 percentage point improvement over the first quarter of 2012. While Ontario personal auto currently performs satisfactorily, the company remains concerned about a number of factors that could have a negative impact on the future profitability of this business. Personal property produced a combined ratio of 90.6% in the first quarter of 2013 which was a 5.0 percentage point increase over the exceptionally strong first quarter a year ago, reflecting a return to more normal winter weather conditions. Overall the personal lines business produced a very strong combined ratio of 90.8%, a 0.6 percentage point increase over 2012.
Commercial auto produced an excellent first quarter combined ratio of 89.3% compared to 106.5% in the same quarter of 2012. A decrease in severity of losses during the quarter contributed significantly to the improved results in this line of business. The commercial property and liability business recorded a disappointing combined ratio of 115.5%, 7.6 percentage points higher than the same quarter in 2012. Commercial property continues to be impacted by an increase in large losses, with the first quarter of 2013 seeing a $6.9 million increase in such losses over the same quarter a year ago. Overall the commercial lines business posted a combined ratio of 106.8%, which represents a 0.6 percentage point improvement over the prior year.
During the first quarter of 2013, Economical began to realize benefits from actions commenced in 2012 related to the business transformation program, which essentially offset the program related costs incurred in operating expenses in the quarter. The total costs of the program included in the first quarter results are $4.9 million, $3.3 million of which are included in underwriting results. These costs represent a 0.8 percentage point increase to the first quarter combined ratio. Excluding the impact of this investment, the combined ratio for the first quarter of 2013 would be 96.1%, a 0.5 percentage point improvement over the same quarter a year ago.
Market yields fell during the first quarter of 2013 negatively impacting the discounted combined ratio by 2.4 percentage points, or $10.5 million. The effect of discounting on claims liabilities was offset by recognized investment gains of $9.7 million on the matched bond portfolio during the first quarter of 2013. During the same quarter a year ago, market yields rose, positively impacting the discounted combined ratio by 3.9 percentage points, or $16.0 million, which was offset by recognized losses of $16.3 million on the matched bond portfolio.
Investment income increased overall due to the recognized gains on the matched bond portfolio discussed above. However, the persistently low interest rate environment continued to depress interest income while realized gains on the remainder of the investment portfolio were down by $14.1 million compared to a year ago. This reduction in realized gains drove the decline in quarterly net income. Overall investment quality remains very strong with over 76% 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 now exceeds $1.5 billion at March 31, 2013. This represents an increase of $48.1 million, or 3.3%, during the first three months of 2013, which is $7.3 million more than that achieved in the same quarter a year ago. Economical's minimum capital test ratio remains very strong at 298% as of March 31, 2013.
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" 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: Economical's ability to implement its strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with the insurance policies that it writes; unfavourable capital market developments or other factors which may affect Economical's investments and funding obligations under its pension plans; the cyclical nature of the P&C industry; management's ability to accurately predict future claims frequency or severity; government regulations; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; Economical's reliance on information technology and telecommunications systems; Economical's dependence on key employees; and general economic, financial and political conditions.
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.
|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 and premium taxes during a defined period expressed as a percentage of net premiums earned for the same period.|
|Underwriting income||Net premiums earned for a defined period less the sum of claims and adjustment expenses (excluding the impact of discounting), commissions, operating expenses and premium taxes during the same period.|
|Discounting||To reflect the time value of money, claim 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.|
|Matched Portfolio||A subset of the company's bond portfolio that is backing claim liabilities is matched in quantum and duration to those claim liabilities. The aim of this matching is to reduce the accounting mismatch in net income that would otherwise be generated by the fluctuations in the fair value of the claim liabilities due to changes in interest rates.|
About Economical Insurance
Founded in 1871, Economical Insurance is one of Canada's leading property and casualty insurers, with more than $1.8 billion in premiums and more than $4.7 billion in assets. In 2010, Economical announced its decision to become the first federally-regulated mutual property and casualty insurance company to demutualize. Economical Insurance conducts business under the following brands: Economical Insurance, Economical, Western General, Economical Select, Perth Insurance, Family Insurance Solutions, Federation Insurance and Economical Financial.
SOURCE: Economical Insurance
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