UNDERWRITING — PERSONAL LINES
Figure 6 presents selected results of operations of the personal lines of business for the year ended December 31.
2016 Personal Lines of Business Results
|Policies in force (thousands)
|Gross written premiums
|Net earned premiums
|Underwriting (loss) income (undiscounted)1
1 The underwriting results in Figure 6 exclude certain operating expenses for the aforementioned investments in Sonnet.
TOTAL PERSONAL LINES
Personal auto GWP grew in 2016, supported by increased auto policy volumes across most regions in Canada within our broker channel, and the launch of Sonnet. The personal auto combined ratio was impacted by an increase in claims severity and lower levels of favourable claims development, primarily due to deterioration in Alberta and British Columbia. In contrast, 2015 was positively impacted by the benefit from the one-time Ontario auto regulatory reforms enacted in that year, which reduced reserves for certain open claims. To address the challenges in personal auto, we are implementing a number of measures, including improvements in pricing, underwriting, and claims actions. We are also investing in the replacement of the personal lines policy administration system to support our broker distribution channel, which we expect will improve operating performance over the longer term, once implemented.
Personal property PIF decreased due to the cancellation of unprofitable business in British Columbia. These lower policy volumes were more than offset by increased average premiums and increased personal property policy volumes across most regions in Canada, resulting in overall GWP growth. The personal property combined ratio was significantly impacted by increased catastrophe losses, including the Fort McMurray wildfire. Catastrophe losses impacted the 2016 combined ratio by 12.3 percentage points, compared to 1.8 percentage points in 2015, which experienced relatively benign weather conditions. Despite these challenges, personal property produced an underwriting profit.
The personal lines of business results excluded certain expenses associated with the development and launch of Sonnet. Commencing in 2017, ongoing costs of Sonnet will be included in the line of business performance, resulting in increased operating expense ratios until Sonnet achieves the necessary scale. We are also investing in a new personal lines policy administration system, which will further increase the expense ratio during the build and roll-out phases. We expect this investment will yield significant efficiencies, including an improved rating structure, improved broker experience, speed to market with pricing changes, and provide a robust platform for acquisitions once fully implemented.