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, November 7, 2019 — 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)

2019 Q3 Consolidated Highlights
  Three months ended September 30 Nine months ended September 30
  2019 2018 Change 2019 2018 Change
Gross written premiums1 674.7 671.0 0.6% 1,844.0 1,811.3 1.8%
Net earned premiums 594.1 563.1 5.5% 1,757.7 1,661.8 5.8%
Claims ratio1 73.2% 78.3% (5.1) pts 73.2% 76.5% (3.3) pts
Expense ratio1,2 33.0% 35.8% (2.8) pts 32.3% 36.4% (4.1) pts
Combined ratio1,2 106.2% 114.1% (7.9) pts 105.5% 112.9% (7.4) pts
Adjusted combined ratio1,2 102.3% 108.4% (6.1) pts 101.7% 106.1% (4.4) pts
Underwriting loss1 (36.8) (79.4) 42.6 (97.4) (213.6) 116.2
Investment income 32.6 15.9 16.7 159.9 98.4 61.5
Net (loss) income  (7.6) (33.3) 25.7 10.6 (59.6) 70.2
2019 Q3 Consolidated Highlights - As At
  As at
  Sep 30, 2019 Dec 31, 2018 Change
Total equity 1,600.4 1,567.3 33.1
Minimum Capital Test1 236% 227% 9 pts

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

2The expense ratio, combined ratio, and adjusted combined ratio are presented in the press release net of other underwriting revenues.

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 VyneTM 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

2019 Q3 Consolidated Highlights - Personal Auto and Property
  Three months ended September 30 Nine months ended September 30
  2019 GWP1 2018 GWP1 Change 2019 GWP1 2018 GWP1 Change
Auto 356.3 343.3 3.8% 939.3 900.2 4.3%
Property 174.4 158.6 10.0% 462.4 408.5 13.2%
Total 530.7 501.9 5.7% 1,401.7 1,308.7 7.1%

1This item is a non-GAAP measure which is defined below.

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.

2019 Q3 Consolidated Highlights - Personal Insurance
  Three months ended September 30 Nine months ended September 30
  Combined
ratio1
Impact of
strategic
investments
Adjusted
combined
ratio1
Combined
ratio1
Impact of
strategic
investments
Adjusted
combined
ratio1
2019
Auto 114.3% 5.7 pts 108.6% 110.6% 6.4 pts 104.2%
Property 92.6% 2.9 pts 89.7% 97.9% 2.3 pts 95.6%
Total 107.5% 5.1 pts 102.4% 106.7% 5.3 pts 101.4%
2018
Auto 113.2% 10.0 pts 103.2% 113.5% 11.4 pts 102.1%
Property 105.8% 3.9 pts 101.9% 108.0% 5.6 pts 102.4%
Total 111.0% 8.2 pts 102.8% 111.8% 9.6 pts 102.2%

1These items are non-GAAP measures which are defined below.

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

2019 Q3 Consolidated Highlights - Commercial Insurance
  Three months ended September 30 Nine months ended September 30
  2019 2018 Change 2019 2018 Change
GWP1
Auto 56.6 59.5 (4.9%) 172.0 185.8 (7.4%)
Property and liability 87.4 109.6 (20.3%) 270.3 316.8 (14.7%)
Total 144.0 169.1 (14.8%) 442.3 502.6 (12.0%)
Combined ratio1
Auto 102.0% 113.3% (11.3) pts 97.8% 110.5% (12.7) pts
Property and liability 102.2% 127.9% (25.7) pts 105.4% 118.5% (13.1) pts
Total 102.1% 122.2% (20.1) pts 102.3% 115.4% (13.1) pts

1 These items are non-GAAP measures which are defined below.

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

2019 Q3 Consolidated Highlights - Investment Income
  Three months ended September 30 Nine months ended September 30
  2019 2018 Change 2019 2018 Change
Interest income 20.1 18.2 1.9 62.1 51.4 10.7
Dividend income 6.8 7.8 (1.0) 20.8 26.8 (6.0)
Total interest and dividend income 26.9 26.0 0.9 82.9 78.2 4.7
Total recognized gains (losses) on investments 5.7 (10.1) 15.8 77.0 20.2 56.8
Total investment income 32.6 15.9 16.7 159.9 98.4 61.5

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%.

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

Catastrophe loss An event causing gross losses in excess of $2 million, and generally greater than 100 claims.
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 the 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.
Minimum capital test (MCT) A regulatory formula defined by the Office of the Superintendent of Financial Institutions Canada, that is a risk-based test of capital available relative to capital required.
Severity A measure of the average dollar amount paid per claim.
Total equity Retained earnings plus accumulated other comprehensive income (loss).
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.
Adjusted combined ratio Combined ratio excluding the financial impact of our investment in the development and implementation of the Vyne platform and the results of the underwriting activity of Sonnet.
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.
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.
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.
Gross written premiums The total premiums from the sale of insurance during a specified period.
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

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.

For further information, contact:

 

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

Stakeholder Relations Inquiries
Dennis Westfall, Head, Investor Relations
(T) 647-777-8903
(C) 416-435-5568
dennis.westfall@economical.com