Economical Insurance reports Third Quarter 2019 financial results

HIGHLIGHTS

• Gross written premiums were relatively unchanged from the prior year, as focus remained on returning the business to profitability
• Lower catastrophe losses and ongoing corrective actions led to a combined ratio of 106.2%, 7.9 points improved from the third quarter of 2018
• Strategic investments impacted the combined ratio by 3.9 points, a reduction of 1.8 points year-over-year as Sonnet continued to scale and Vyne deployment was completed in 2018
• Income from interest and dividends was relatively stable, although fixed income yields have dropped significantly in 2019
• Financial position remained solid, with an MCT of 236%

WATERLOO, ON, Nov. 7, 2019 /CNW/ - Economical Insurance today announced consolidated financial results for the three and nine month periods ended September 30, 2019.

"Our combined ratio improved almost eight points from last year's elevated level, reflecting relatively benign weather experienced in most parts of the country during the third quarter, and the benefit of our actions," said Rowan Saunders, President and CEO, Economical Insurance. "The solid underlying performance of our personal property and commercial businesses and continued improvement in Sonnet were partly offset by an elevated personal auto claims ratio. We have taken meaningful rate action in our auto book designed to address our existing rate deficiency in the near-term. Overall, the improvement in results further builds confidence that we are steadily returning Economical to profitability. Corrective underwriting actions and strategic investments in Sonnet and Vyne have built a solid foundation from which to grow."

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

Gross written premiums ("GWP") for the third quarter of 2019 increased by $3.7 million or 0.6% compared to the third quarter of 2018. Personal lines premiums were up 5.7% from a year ago, driven by Sonnet and our broker personal property business. Commercial lines premiums declined 14.8% due to the ongoing impact of our turnaround plan. Year-to-date, personal lines premiums increased $93.0 million or 7.1% and commercial lines premiums declined $60.3 million or 12.0% as compared to the prior year.

Underwriting activity for the third quarter of 2019 improved, producing an underwriting loss of $36.8 million and a combined ratio of 106.2%, compared to an underwriting loss of $79.4 million and a combined ratio of 114.1% in the same quarter a year ago. The improvement in underwriting loss was supported by a $26.4 million reduction in catastrophe losses, which led to an improvement in the combined ratio of 4.8 points. Additional improvements were realized due to the impact of our ongoing turnaround actions, and a decrease in the impact of our strategic investments. The impact on the combined ratio of our strategic investments in the Vyne^TM platform and Sonnet, which continued to scale, was 3.9 points in the third quarter of 2019, compared to 5.7 points in the same period of 2018. Year-to-date, our underwriting results improved due to the same factors that affected the third quarter of 2019.

Line of Business Results

Personal insurance

The underwriting activity of Sonnet and the expenses pertaining to our investment in the development and implementation of the Vyne platform are included in the personal insurance line of business performance. The collective impact of these strategic investments on our combined ratios has been noted in the tables below to show the combined ratios with and without these investments.

Overall, personal lines GWP increased by 5.7%. Sonnet generated GWP of $63.2 million in the quarter, an increase of 53.3% over the same quarter a year ago. Sonnet continued to scale and benefitted from significant targeted rate increases and improved efficiencies in customer acquisitions. On an adjusted basis, personal lines produced an underwriting loss of $9.6 million compared to an underwriting loss of $10.7 million in the same quarter a year ago as our profitability actions continued to work through the portfolio. Year-to-date, on an adjusted basis, personal lines produced an underwriting loss of $16.9 million compared to an underwriting loss of $24.3 million in the same period of 2018.

Personal auto premiums increased in the quarter by 3.8% as growth in Sonnet and rate increases more than offset underwriting and broker management actions. The adjusted combined ratio in the quarter of 108.6% was impacted by an increase in the core accident year claims ratio and a shift from favourable to adverse claims development. This was partially offset by a reduction in catastrophe losses and rate increases in 2019. 

Personal property premiums increased in the quarter by 10.0%, driven by strong growth from both Sonnet and Vyne, and rate increases in 2019. The adjusted combined ratio in the quarter improved due to premium increases, decreased claims frequency, and a reduction in catastrophe losses.

Commercial insurance

Overall, commercial lines premiums decreased by 14.8%, impacted by our continued turnaround plan. Commercial lines produced an underwriting loss of $3.1 million compared to a $35.0 million underwriting loss in the same quarter a year ago, a significant improvement as our turnaround plan continued to work through this book of business. Year-to-date, commercial lines produced an underwriting loss of $10.6 million compared to a loss of $75.8 million in the same period of 2018.

Commercial auto premiums decreased in the quarter by 4.9% and the combined ratio improved 11.3 points driven by the impact of our targeted underwriting actions. The combined ratio also benefitted from a shift from adverse to favourable claims development.

Commercial property and liability premiums decreased in the quarter by 20.3%, driven primarily by the impact of our targeted underwriting actions which included rate increases in our mid-market and small business portfolios, exiting from unprofitable and volatile portfolios, and enhanced underwriting and risk selection. The combined ratio improved by 25.7 points due to our extensive underwriting actions, an $11.6 million or 12.0 point reduction in catastrophe losses, and improved claims development.  

Investment income

The shift in our investment portfolio toward higher bond holdings and lower stock holdings resulted in a corresponding increase in interest income and decline in dividend income. Total recognized gains on investments increased due primarily to gains on bonds, which more than offset losses on preferred stocks. Year-to-date, interest and dividend income were impacted by these same factors. Recognized gains on investments for the year increased due to gains on bonds, which were partially offset by lower gains on common stocks and losses on preferred stocks.

Net loss decreased by $25.7 million over the same quarter a year ago due to lower underwriting losses and higher investment income, partially offset by the negative impact of discounting driven by lower effective yields. Year-to-date, net income increased by $70.2 million due to these same factors.

Economical's capital position remains well in excess of both minimum internal capital and external regulatory requirements as of September 30, 2019, with total equity of $1.6 billion, and a Minimum Capital Test ratio of 236%.

About Economical Insurance

Economical Mutual Insurance Company ("Economical" or "Economical Insurance", which includes its subsidiaries where the context so requires) is a leading property and casualty insurer in Canada, with approximately $2.5 billion in annualized gross written premiums and $5.9 billion in assets as at September 30, 2019. Economical is a Canadian-owned and operated company that services the insurance needs of more than one million customers across the country.

Forward-looking statements

Certain of the statements made 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 may constitute forward-looking statements. When used in this press release, the words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely", "looking to", "potential", or negative or other variations of these words or other similar or comparable words or phrases suggesting future events or outcomes, are typically intended to identify forward-looking statements.

Forward-looking statements are based on estimates and assumptions made by management based on management's knowledge, 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 appropriately price its insurance products to produce an acceptable return;
• Economical's ability to accurately assess the risks associated with the insurance policies that it writes;
• Economical's ability to assess and pay claims in accordance with our insurance policies;
• litigation and regulatory actions;
• Economical's ability to obtain adequate reinsurance coverage to alleviate risk;
• Economical's ability to accurately predict future claims frequency or severity, including the frequency and severity of weather-related events;
• the occurrence of unpredictable catastrophe events;
• unfavourable capital market developments, interest rate movements, or other factors which may affect our investments;
• Economical's ability to successfully manage credit risk from its counterparties;
• foreign currency fluctuations;
• Economical's ability to meet payment obligations as they become due;
• Economical's dependence on key employees;
• Economical's ability to manage and protect the appropriate collection and storage of information;
• Economical's reliance on information technology and telecommunications systems and the potential disruption or failure of those systems, including as a result of cyber security risk;
• failure of key service providers or vendors to comply with contractual or business terms;
• changes in legislation or its interpretation or application, or supervisory expectations or requirements, including risk-based capital guidelines;
• deceptive or illegal acts undertaken by an employee or a third party;
• Economical's ability to respond to events impacting its ability to conduct business as normal;
• Economical's ability to implement its strategy or operate its business as management currently expects;
• general economic, financial, and political conditions, particularly those in Canada;
• the competitive market environment;
• the introduction of disruptive innovation;
• distribution channel risk, including Economical's reliance on independent brokers to sell its products;
• Economical's ability to manage capital effectively; and
• periodic negative publicity regarding the insurance industry or Economical.

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, and other factors and risks could impact our actual results, performance and achievements; however, these factors should be considered carefully, and readers should not place undue reliance on the forward-looking statements we make. We do not undertake 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

SOURCE Economical Insurance