HIGHLIGHTS

  • Increased gross written premiums by 1.1% over first quarter 2015
  • Improved combined ratio by 4.6 percentage points over first quarter 2015
  • Generated net income of $28.5 million for the quarter
  • Increased total equity by $19.2 million since December 31, 2015 to $1.80 billion

WATERLOO, ON, May 10, 2016Economical Insurance, one of Canada's leading property and casualty insurance companies, today announced consolidated financial results for the three months ended March 31, 2016.

"Economical reported solid improvement in underwriting performance over the same quarter a year ago," said Karen Gavan, President and CEO. "This was largely driven by improved results in commercial property and liability as a result of our underwriting and pricing segmentation improvements, and relatively benign weather conditions. We remain committed to our commercial pricing strategy to address the historic profitability challenges with this line of business despite the impact on retention. During the quarter, we continued to make significant investments in the development of our separately-branded direct channel and the replacement of our policy administration system, two key elements of our continued strategy to drive profitable growth."

"As the wildfire in Northern Alberta continues to cause significant destruction, our first priority is to our policyholders to be there when they need us the most. While we are still evaluating the financial impact on our second quarter results, our thoughts are with the people of Fort McMurray as this tragic event continues to unfold."

Economical Insurance Consolidated Highlights

($ in millions, except as otherwise noted)

2016 Q1 Consolidated Financial Results
  Three months ended March 31
  2016 2015 Change
Gross written premiums1 426.7 422.1 4.6
Net premiums earned 481.4 469.4 12.0
Claims ratio1 66.0% 71.9% (5.9) pts
Expense ratio1 35.1% 33.8% 1.3 pts
Combined ratio1 101.1% 105.7% (4.6) pts
Underwriting income (loss)1 (5.4) (26.8) 21.4
Investment income 42.6 90.3 (47.7)
Net income 28.5 34.2 (5.7)
  As at
  March 31, 2016 December 31, 2015 Change
Total equity 1,798.2 1,779.0 19.2
Minimum Capital Test 278% 285% (7) pts

1These items are non-GAAP measures which are defined below. Claims ratio, expense ratio, combined ratio and underwriting loss exclude the impact of discounting.

Gross written premiums for the first quarter 2016 grew by $4.6 million or 1.1% over the same quarter a year ago. Personal lines premiums grew by $12.6 million or 5.1% driven primarily by increased auto policy volumes as well as increased personal property policy volumes and average premiums. Commercial lines premiums declined by $8.0 million or 4.6% 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.

Underwriting activity for the first quarter 2016 produced a $5.4 million underwriting loss, resulting in a combined ratio of 101.1%, compared to an underwriting loss of $26.8 million and a combined ratio of 105.7% in the same quarter a year ago. This significantly improved performance was driven by improved results in commercial property and liability as a result of our underwriting and pricing segmentation improvements, and relatively benign weather conditions. This was somewhat offset by increased spend on the development of our separately-branded direct channel and the replacement of our policy administration system.

Our infrastructure and operational investments impacted the first quarter 2016 expense ratio by 2.5 percentage points compared to 2.0 percentage points in the same quarter a year ago. We expect the strategic investments will continue to increase operating expenses during the implementation and start-up phases, but are expected to drive profitable growth and further improve our operational efficiency in the longer term.

Combined Ratio1

Combined Ratio
  Three months ended March 31
  2016 2015 Change
Personal auto 101.2% 102.1% (0.9) pts
Personal property 88.5% 86.4% 2.1 pts
Total personal lines 97.4% 97.2% 0.2 pts
Commercial auto 103.0% 102.7% 0.3pts
Commercial property and liability 100.1% 119.7% (19.6)pts
Total commercial lines 101.0% 113.8% (12.8)pts

1The above combined ratios exclude costs for certain infrastructure and operational investments.

The personal auto combined ratio improved slightly over the same quarter a year ago due to more favourable claims development and a decrease in large losses. The personal property combined ratio increased due to an increase in large losses, partially offset by increased average premiums and relatively benign weather conditions. Personal property performance remained strong in the first quarter 2016. Overall, personal lines produced an underwriting profit of $7.9 million consistent with the same quarter a year ago.

The commercial auto combined ratio increased slightly compared to the same quarter a year ago. The commercial property and liability combined ratio significantly improved as underwriting and pricing actions continue to take hold. Relatively benign weather conditions and a decrease in large losses and claims frequency also contributed to the improved performance. Overall, commercial lines produced an underwriting loss of $1.8 million compared to $25.2 million in the same quarter a year ago.

Investment income decreased from $90.3 million to $42.6 million. In the prior year, a significant decline in bond yields and trading activity within strong equity and bond markets produced significant recognized gains. In the current quarter, yields increased slightly resulting in lower recognized gains. Interest and dividend income were relatively consistent quarter over quarter. Investment quality remains strong with more than 71% of total investments held in government and investment-grade corporate bonds as at March 31, 2016. The balance of investments is primarily held in common and preferred shares of large, well-established companies.

Net income decreased from $34.2 million in the same quarter a year ago to $28.5 million as stronger underwriting performance was more than offset by a decrease in investment income.

Economical's capital position remains strong. Total equity was $1.8 billion at March 31, 2016, an increase of $19.2 million, or 1.1% since December 31, 2015. Economical's minimum capital test ratio is at 278%, which remains significantly in excess of both internal capital management and external regulatory requirements as of March 31, 2016.

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. 

Catastrophe loss

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

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.
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.
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.
Gross written premiums The total premiums from the sale of insurance during a specified period.
Large loss A gross loss in excess of $1 million
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.
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.

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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 $5.3 billion in assets as at March 31, 2016. Based in Waterloo, this Canadian-owned and operated company services the insurance needs of more than one million customers across the country.

For further information, contact:

 

David Bradfield
Vice-president, Communication
Economical Insurance
(T) 519.570.8249
(C) 519.404.0989
news@economical.com

Max Weis
Vice-President, Corporate Development
Economical Insurance
(T) 519.570.8291 (Waterloo)
(T) 647.260.3679 (Toronto)
max.weis@economical.com