HIGHLIGHTS

  • Increased total gross written premiums by 8.4% over third quarter 2016, driven by growth in personal lines
  • Commercial lines gross written premiums declined by 6.1%, as corrective actions began to take hold
  • Reported a combined ratio of 116.2% for the quarter, including an impact of 8.1 percentage points related to strategic investments in our personal lines business
  • Generated a net loss of $51.5 million for the quarter

WATERLOO, ON, November 3, 2017 — Economical Insurance, one of Canada’s leading property and casualty insurance companies, today announced consolidated financial results for the three and nine month periods ended September 30, 2017.

“Our third quarter results continue to reflect the trends we experienced in the first half of the year. Gross written premiums continued to grow, driven by personal lines. However, the pace of growth slowed due to the effects of our corrective underwriting and pricing actions. The performance of our auto lines, and in particular commercial fleet business, continues to be challenged,” said Rowan Saunders, President and CEO. “To address these challenges, we have implemented a range of targeted rate increases, as well as underwriting and broker management actions. We will be implementing further actions by the end of the year, but they will take time to earn through our results.”

Economical Insurance Consolidated Highlights

($ in millions, except as otherwise noted)
Economical Insurance 2017 Q3 Consolidated Highlights
  Three months ended
September 30
Nine months ended
September 30
  2017 2016 Change 2017 2016 Change
Gross written premiums1 596.3 550.3 46.0 1,745.5 1,562.4 183.1
Net earned premiums 552.8 493.9 58.9 1,609.9 1,456.0 153.9
Claims ratio1 79.6% 77.4% 2.2 pts 75.0% 70.3% 4.7 pts
Expense ratio1 36.6% 38.7% (2.1) pts 37.2% 37.0% 0.2 pts
Combined ratio1 116.2% 116.1% 0.1 pts 112.2% 107.3% 4.9 pts
Underwriting loss1 (89.7) (79.3) (10.4) (195.8) (106.3) (89.5)
Investment income 1.0 41.3 (40.3) 84.9 134.4 (49.5)
Net (loss) income (51.5) (27.6) (23.9) (64.7) 18.0 (82.7)
Economical Insurance 2017 Q3 Consolidated Highlights As At:
  As at
  Sep 30,
2017
Dec 31,
2016
Change
Total equity 1,749.6 1,803.1 (53.5)
Minimum Capital Test1 249% 276% (27) 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 third quarter of 2017 grew by $46.0 million or 8.4% over the same quarter a year ago. Personal lines premiums grew by $57.5 million or 15.8%, driven by increased auto and property policy volumes in our broker channel, new business growth from our digital direct distribution channel, Sonnet, and the acquisition of Petline. Commercial lines premiums declined by $11.5 million or 6.1%, as the implementation of our targeted pricing, underwriting and broker management actions began to take hold. We expect continued downward pressure on the commercial lines GWP as our planned actions continue to be implemented over the upcoming quarters. Year-to-date, personal lines premiums grew by $180.2 million or 18.2% and commercial lines premiums grew by $2.9 million or 0.5% over the same period a year ago.

Underwriting activity for the third quarter of 2017 produced a loss of $89.7 million, resulting in a combined ratio of 116.2%, compared to an underwriting loss of $79.3 million and a combined ratio of 116.1% in the same quarter a year ago. Auto lines remain challenged, primarily in Ontario, Alberta, and British Columbia. We have implemented targeted pricing and underwriting actions in all three regions during the year. We continue to make significant investments in Sonnet and the replacement of the policy administration system, primarily for our personal lines broker business, which impacted the combined ratio by 8.1 percentage points in the third quarter of 2017, compared to 7.7 percentage points in the same quarter a year ago. We expect that these strategic investments will impact our underwriting results during the ongoing implementation and start-up phases, but are expected to improve our long-term profitability. Year-to-date, underwriting activity produced a loss of $195.8 million, resulting in a combined ratio of 112.2%, compared to an underwriting loss of $106.3 million and a combined ratio of 107.3% in the same quarter a year ago. Year-to-date, our underwriting results were impacted by the same factors as the quarter, including an impact on the combined ratio from our strategic investments of 7.1 percentage points in 2017 and 5.2 percentage points in 2016.

Line of Business Combined Ratios

In 2017, the underwriting activity of Sonnet and our investment in a new personal lines policy administration system have been included in the line of business performance, resulting in increased combined ratios. The collective impact of these strategic investments on the 2017 combined ratios has been noted in the tables below to depict the adjusted combined ratios excluding these investments for comparative purposes.

Personal insurance

Personal Insurance Highlights - 2017 Q3 Three months ended September 30
Three months ended September 30
Combined Ratio 2017 2017 Impact of
Strategic Investments
2017 Adjusted2 20161 Change
Personal auto 115.3% 14.5 pts 100.8% 104.1% (3.3) pts
Personal property 112.5% 7.1 pts 105.4% 112.9% (7.5) pts
Total personal lines 114.5% 12.3 pts 102.2% 106.7% (4.5) pts
Personal Insurance Highlights - 2017 Q3 Nine months ended September 30
Nine months ended September 30
Combined Ratio 2017 2017 Impact of
Strategic Investments
2017 Adjusted2 20161 Change
Personal auto 116.3% 12.6 pts 103.7% 97.9% 5.8 pts
Personal property 103.7% 6.5 pts 97.2% 103.9% (6.7) pts
Total personal lines 112.4% 10.8 pts 101.6% 99.6% 2.0 pts

1 In 2016, the personal lines of business results excluded certain expenses associated with the development and launch of Sonnet as it was in the pre-launch phase for the majority of the year.

2This item is a non-GAAP measure which is defined below.

 

The adjusted personal auto combined ratio for the third quarter improved compared to the same quarter a year ago, primarily due to lower levels of catastrophe losses. The same quarter a year ago was impacted by a number of wind, hail and rain storms in Alberta. Despite the improvement, this line of business continues to be challenged, primarily in Ontario and Alberta bodily injury, and British Columbia excess auto liability. Targeted rate increases and a number of underwriting actions have been implemented with further actions planned for the balance of the year. These actions will take time to implement and earn through our results.

The adjusted personal property combined ratio for the third quarter improved compared to the same quarter a year ago, primarily due to lower levels of weather-related catastrophe losses. The current quarter was primarily impacted by the British Columbia wildfires and the Windsor flood, whereas the same quarter a year ago was impacted by a number of wind, hail and rain storms in Alberta.

Overall, on an adjusted basis, personal lines produced an underwriting loss of $8.0 million compared to an underwriting loss of $21.1 million in the same quarter a year ago. Year-to-date, on an adjusted basis, personal lines produced an underwriting loss of $16.9 million compared to an underwriting profit of $3.3 million in 2016.

Commercial insurance

Commercial Insurance Highlights - 2017 Q3
  Three months ended
September 30
Nine months ended
September 30
Combined Ratio 2017 2016 Change 2017 2016 Change
Commercial auto 137.8% 99.3% 38.5 pts 122.4% 97.8% 24.6 pts
Commercial property and liability 107.9% 120.0% (12.1) pts 104.9% 112.2% (7.3) pts
Total commercial lines 119.6% 112.2% 7.4 pts 111.8% 106.9% 4.9 pts

In the second quarter of 2017, we initiated a comprehensive review of our commercial line portfolio by region and product type. This ongoing review has led to a number of actions in the second and third quarters, including exiting unprofitable books of business and certain product offerings, targeted rate increases, and increased underwriting discipline. These actions have impacted our policy volumes and gross written premiums during the quarter, and this is expected to continue as further actions are implemented from our review. This should result in a more favourable mix of commercial business and improve operating performance going forward.

The commercial auto combined ratio for the third quarter was primarily impacted by a significant deterioration in bodily injury for Ontario fleets, and prior year adverse development, as well as an increase in the core accident year claims ratio. To address the performance of this line of business, targeted rate increases, and underwriting and broker management actions have already been implemented with further actions planned for the balance of the year.

The commercial property and liability combined ratio for the third quarter improved due to a decrease in large losses. The decrease in large losses was partially offset by an increase in catastrophe losses associated with the British Columbia wildfires and the Windsor flood. While the combined ratio improved, we continue to implement targeted rate increases, and underwriting and broker management actions in certain areas to improve the profitability of this line of business.

Overall, commercial lines produced an underwriting loss of $36.5 million compared to $21.8 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting loss of $65.2 million compared to $36.4 million in 2016.

Investment income

Investment Income Highlights - 2017 Q3
  Three months ended
September 30
Nine months ended
September 30
  2017 2016 Change 2017 2016 Change
Interest income 14.4 15.1 (0.7) 44.2 45.6 (1.4)
Dividend income 9.2 11.3 (2.1) 28.3 29.4 (1.1)
Total interest and dividend income 23.6 26.4 (2.8) 72.5 75.0 (2.5)
Total recognized (losses)
gains on investments
(22.6) 14.9 (37.5) 12.4 59.4 (47.0)
Total investment income 1.0 41.3 (40.3) 84.9 134.4 (49.5)

Recurring investment income declined during the third quarter of 2017, compared to the same quarter a year ago, primarily due to a decrease in dividend income. Recognized gains shifted to losses as an increase in yields in the quarter produced unrealized losses on the bond portfolio. These were partially offset by realized gains, mainly on foreign and domestic equities. Year-to-date, recognized gains were lower primarily due to a decrease in yields.

Net loss increased by $23.9 million over the same quarter a year ago, primarily due to a combination of lower investment income and higher underwriting losses. Year-to-date, the net loss was $64.7 million in 2017, compared to net income of $18.0 million in the prior comparable period due to these same factors.

Economical’s capital position remains significantly in excess of both internal capital management and external regulatory requirements as of September 30, 2017, with total equity of approximately $1.75 billion, and a minimum capital test ratio of 249%.

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 the 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

Definitions
Catastrophe loss Generally, an event causing greater than 100 claims and gross losses in excess of $2 million.
Claims development The difference between prior year end estimates of ultimate undiscounted claim costs and the current estimates for the same block of claims. A favourable development represents a reduction in the estimated ultimate claim costs during the period for that block of claims.
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.
Frequency A measure of how often a claim is reported as a function of policies in force.
Large loss A single claim with a gross loss in excess of $1 million.
Severity A measure of the average dollar amount paid per claim.
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.
Gross written premiums The total premiums from the sale of insurance during a specified period.
Claims ratio Claims and adjustment expenses (excluding the impact of discounting) during a defined period expressed as a percentage of net earned premiums for the same period.
Core accident year claims ratio Claims ratio excluding catastrophe losses and claims development.
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 earned premiums 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 earned premiums for the same period.
Adjusted combined ratio Combined ratio excluding the impact of our investment in a new personal lines policy administration system and the results of the underwriting activity of Sonnet.
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 loss Net earned premiums 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.

About Economical Insurance

Founded in 1871, Economical Insurance is one of Canada’s leading property and casualty insurers, with more than $2.2 billion in annualized premium volume and over $5.6 billion in assets as at September 30, 2017. 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:

 

Sarah Stevens
Manager, Public and Media Relations
Economical Insurance
(T) 877.859.4950 ext. 54042
(C) 416.986.9360
sarah.stevens@economical.com

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