The Economical Insurance Group reports financial results for Fourth Quarter and Full Year 2011

  • Improved underwriting results by $23.1 million during the quarter and $80.9 million for the year
  • Improved combined ratio by 5.8 percentage points in the quarter and 4.8 percentage points for the year
  • Earned net income of $91.0 million in 2011, despite recording significant weather-related catastrophic losses of $61.9 million and investment impairment charges of $36.3 million
  • Increased total mutual policyholders' equity by $97.4 million in 2011

WATERLOO, ON, Feb. 23, 2012 /CNW/ - The Economical Insurance Group ("Economical"), one of Canada's leading property and casualty insurance companies, today announced consolidated financial results for the three-month and 12-month periods ended December 31, 2011.

Economical reported consolidated net income of $37.5 million for the fourth quarter of 2011 compared to $57.4 million a year ago. Economical posted a combined ratio of 92.5% for the fourth quarter, an improvement of 5.8 percentage points from the same quarter a year ago.

Net income for the year was strong at $91.0 million, an 11.9% increase over the prior year net income of $81.3 million. The improvement was driven by a significant improvement in underwriting results over the prior year resulting in a combined ratio of 98.1% compared to 102.9% in 2010.

"Economical's resilient and positive fourth quarter performance demonstrates a strengthening trend of profitability and growth," said Karen Gavan, president and CEO. "The absence of major weather-related losses this quarter helped to showcase the strong fundamental business operations of the company." Looking at the year as a whole, Gavan said: "Economical has now successfully transitioned from several years of corrective underwriting actions and strategic repositioning, and in 2012 we will continue to build upon these very positive results."

Economical's total mutual policyholders' equity was $1,300.1 million at December 31st, an 8.1% increase in 2011.

Commenting on Economical's planned demutualization, Gavan said: "We remain encouraged by the Department of Finance's clear commitment to providing a regulatory framework for demutualization. We also continue to have discussions with the Department of Finance in relation to this process."

The Economical Insurance Group Consolidated Highlights*

($ in millions, except as otherwise noted)

Variance 2011 2010 Variance
Gross written premiums 433.5 414.0 19.5 1,723.2 1,722.0 1.2
Claims ratio 57.5% 63.2% (5.7)% 63.6% 69.1% (5.5)%
Combined ratio 92.5% 98.3% (5.8)% 98.1% 102.9% (4.8)%
Underwriting income (loss) 30.2 7.1 23.1 32.4 (48.5) 80.9
Investment income 24.1 40.3 (16.2) 148.0 175.2 (27.2)
Net income 37.5 57.4 (19.9) 91.0 81.3 9.7
  2011 2010 Variance      
Total mutual policyholders' equity 1,300.1 1,202.7 97.4      

*Note:  All amounts reflect Economical's implementation of International Financial Reporting Standards effective January 1, 2010. Claims ratio, combined ratio and underwriting income (loss) exclude the impact of discounting.

Gross written premiums showed strong growth in the fourth quarter at $433.5 million compared to $414.0 million in the same quarter a year ago, a 4.7% increase. As policy volumes have stabilized throughout the year, the strong growth in the fourth quarter more than made up for the gross written premium shortfall experienced throughout the first three quarters of 2011. Full year 2011 gross written premiums were $1,723.2 million, slightly above the 2010 gross written premium level of $1,722.0. A $23.4 million decline in personal automobile premiums was more than offset by growth in personal property and commercial lines businesses of 2.4% and 2.5% respectively. With policy volumes increasing monthly since May, Economical is well positioned to build on this momentum in 2012.

Underwriting results continued to improve in the fourth quarter, with an increase in the underwriting profit to $30.2 million from $7.1 million a year ago. This resulted in a combined ratio improvement of 5.8 percentage points compared with the same quarter a year ago.

Economical recorded an underwriting profit of $32.4 million for 2011, an $80.9 million improvement over the underwriting loss of $48.5 million in 2010.  This dramatic improvement was achieved despite weather-related catastrophic losses during the year which totalled $61.9 million, compared to only $24.5 million during 2010.  These catastrophic losses, which were primarily related to April wind and rain storms in Ontario and the August tornado in Goderich, Ontario, amounted to a 3.8 percentage point increase in the combined ratio in 2011.  Excluding weather-related catastrophic losses the combined ratio was 94.2% compared to 101.4% in 2010.

Economical's personal auto business generated an underwriting profit of $22.9 million for the fourth quarter, compared to $8.1 million a year ago. These improved results continue to reflect the specific actions taken to improve profitability in this business including the implementation of the company's new Ontario auto product, continued vigilance to expose fraudulent claims activity, as well as the Ontario government's auto insurance reforms. Personal property business produced an underwriting profit of $12.2 million compared to an underwriting loss of $3.9 million for the same quarter a year ago. The improved results reflect management's continued focus on diligent underwriting and fewer weather-related catastrophic losses in the fourth quarter of 2011. For the full year personal lines business produced an underwriting profit of $69.3 million compared to an underwriting loss of $48.0 million in 2010 stemming from significant improvements in the personal auto business, specifically in Ontario.

Commercial auto recorded a fourth quarter underwriting profit of $0.1 million compared to an underwriting loss of $1.8 million a year ago. For the full year commercial auto was profitable with an underwriting profit of $1.0 million, compared to an underwriting loss of $9.2 million in 2010. The commercial property business recorded an underwriting loss of $5.0 million, compared to an underwriting profit of $4.6 million for the same quarter a year ago. This was driven by a higher prevalence of large loss activity in the current quarter compared to the fourth quarter of 2010. For the full year the commercial lines business produced an underwriting loss of $36.9 million compared to an underwriting loss in 2010 of $0.5 million. The 2011 results were significantly impacted by weather-related catastrophic losses of $31.0 million compared to $5.6 million in the prior year.

Economical's 2011 combined ratio was 98.1%, representing an improvement of 4.8 percentage points over the prior year. This translates into an $80.9 million improvement in underwriting profit.  Weather-related catastrophic losses were $61.9 million compared to $24.5 million in 2010, amounting to a 3.8 percentage point increase in the combined ratio for 2011, compared to 1.5% in 2010. Discounting negatively affected the discounted combined ratio by 2.5 percentage points, or $40.5 million, due to lower investment yields. Unrealized gains of $44.1 million, generated by the matched bond portfolio, offset the negative effect of discounting on claims liabilities.

Investment income decreased $16.2 million from the fourth quarter of 2010, driven primarily by significant recognized gains in the fourth quarter of 2010 which were not available in 2011 as a result of the poor performance of capital markets. Total investment income for the year was $148.0 million compared to $175.2 million in 2010. This decline was primarily a result of weak equity market performance during 2011 presenting less opportunity to realize gains relative to 2010.  Economical recognized $36.3 million in impairment losses in 2011, compared to an impairment recovery of $0.6 million in 2010. Overall investment quality remains strong with over 83% of total investments held in high quality government and corporate bonds.

Economical's capital position continues to strengthen and total mutual policyholders' equity has increased by $97.4 million during 2011. Economical's minimum capital test ratio remains very strong at 269.0% as of December 31, 2011.

Forward looking statements

This document may contain forward looking statements that involve risks and uncertainties. The Group'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 the Economical Insurance Group
Founded in 1871, The Economical Insurance Group is one of Canada's leading property and casualty insurers, with $4.6 billion in assets and mutual policyholders' equity exceeding $1.3 billion. In 2010, Economical made history by announcing 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 regulatory and mutual policyholder approval following the federal government's completion of demutualization regulations.

The Economical Insurance Group's member companies include: Economical Mutual Insurance Company® (including Western General® Farm Division), Waterloo Insurance Company®, Perth Insurance Company®, The Missisquoi Insurance Company®, Federation Insurance Company of Canada®, Family Insurance Solutions and The Mattei Companies.

SOURCE Economical Insurance Group

For further information:

Doug Maybee
The Economical Insurance Group
(T) 519.570.8500 ext. 48249
(C) 519.404.0989

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Economical Insurance Group

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