HIGHLIGHTS

  • We have announced in excess of $70 million of customer relief actions so far this year, and remain committed to assisting our customers manage the challenges of the ongoing pandemic
  • Gross written premiums increased 11.7% versus the third quarter of 2019, as robust growth in our personal property and commercial businesses was partly offset by the impact of our significant customer relief efforts
  • Benefits from underwriting actions, low levels of catastrophe losses, and a reduction in auto claims frequency led to a combined ratio of 93.9% in the quarter, an improvement of 12.3 points year over year
  • Through nine months of 2020, underwriting income has improved $161.1 million from the same period in 2019, continuing a trend which saw a $147.3 million improvement in full year 2019
  • Interest and dividend income declined $1.2 million in the quarter, a headwind to performance that is expected to persist given low fixed income yields
  • Strong underwriting results bolstered our solid financial position, with an MCT of 253% as at September 30, 2020, and an increase in total equity of $111.7 million since December 31, 2019

WATERLOO, ON, November 5, 2020 — Economical Insurance today announced consolidated financial results for the three and nine-month periods ended September 30, 2020.

“Our underwriting results in the quarter were strong and marked the ninth consecutive quarter of year over year improvement, demonstrating that our past efforts to improve the business have taken hold on a sustainable basis. Our performance was enhanced by low levels of catastrophe losses, and a reduction in claims frequency reflecting the ongoing impact of COVID-19,” said Rowan Saunders, President & CEO. “On an adjusted basis, our combined ratio of 91.7% was 10.6 points better than a year ago. We were pleased to announce our relationship with Uber during the summer, continuing our focus on digital transformation. The initial impact of this relationship added to the growth momentum we’ve built in recent quarters as indicated by the 11.7% increase in premiums overall compared to the third quarter of 2019.”

“Our capital strength and improved operating results position the Company well as we continue to support our customers, brokers, and employees during this challenging time,” stated Philip Mather, EVP & CFO. “We ended the quarter with an MCT of 253% and total equity exceeding $1.7 billion, evidencing our financial strength and resilience in the face of ongoing uncertainty.”

“Our results in the first nine months of 2020 were strong, but we are still managing through a major global pandemic and therefore remain cautious in our outlook,” noted Saunders. “We have already provided significant customer relief across the business to customers in need and we will continue to do so over the coming quarters. We maintain our focus on prioritizing the health and safety of our employees, actively managing the evolving human and financial impact this pandemic continues to cause, and meeting the needs of our customers and broker partners.”

Economical Insurance Consolidated Highlights

($ in millions, except as otherwise noted)

  Three months ended September 30 Nine months ended September 30
  2020 2019 Change 2020 2019 Change
Gross written premiums1 753.9 674.7 11.7% 2,058.8 1,844.0 11.6%
Net earned premiums 645.0 594.1 8.6% 1,843.1 1,757.7 4.9%
Claims ratio1,2 61.2% 73.2% (12.0) pts 63.6% 73.2% (9.6) pts
Expense ratio1,2,3 32.7% 33.0% (0.3) pts 32.9% 32.3% 0.6 pts
Combined ratio1,2,3 93.9% 106.2% (12.3) pts 96.5% 105.5% (9.0) pts
Adjusted combined ratio1,2,3 91.7% 102.3% (10.6) pts 93.2% 101.7% (8.5) pts
Underwriting income (loss)2 39.1 (36.8) 75.9 63.7 (97.4) 161.1
Investment income 33.4 32.6 0.8 155.2 159.9 (4.7)
Net income (loss) 45.6 (7.6) 53.2 87.2 10.6 76.6
  As at
  Sep 30, 2020 Dec 31, 2019 Change
Total equity 1,722.7 1,611.0 111.7
Minimum Capital Test1 253% 239% 14 pts

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

2 The claims ratio, expense ratio, combined ratio, adjusted combined ratio, and underwriting income (loss) exclude the impact of discounting.

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

Gross written premiums (“GWP”) for the third quarter of 2020 increased by $79.2 million or 11.7% compared to the third quarter of 2019, driven by new business and rate increases in 2019 across our business. These were partially offset by customer relief actions in relation to COVID-19. These actions will continue to impact written and earned premiums for the remainder of 2020 and into 2021 as their economic impacts are recognized. Personal lines premiums were up 9.0%, with increases in both our broker and direct businesses. Commercial lines premiums increased 21.8%, as we are now focused on growing our commercial line of business. This includes our new relationship with Uber which launched on September 1. Year to date, personal lines premiums increased $144.1 million or 10.3% and commercial lines premiums increased $70.7 million or 16.0% as compared to the prior year.

Underwriting activity for the third quarter of 2020 improved substantially, producing underwriting income of $39.1 million and a combined ratio of 93.9%, compared to an underwriting loss of $36.8 million and a combined ratio of 106.2% in the same quarter a year ago. The underwriting improvement of $75.9 million was due primarily to a decrease in the core accident year claims ratio driven by our ongoing underwriting actions and rate increases over the past several years, as well as lower auto claims frequency which benefitted from COVID-19 related reduced activity levels. These were partially offset by the impact of our ongoing customer relief actions. The impact on the combined ratio of our strategic investments in Sonnet, which continued to scale, was 2.2 points in the third quarter of 2020, compared to 3.9 points in the same period of 2019 for the VyneTM and Sonnet platforms. Year to date, our improvement in underwriting results was also positively impacted by less active non-catastrophe weather conditions in 2020 compared to particularly challenging weather in the first quarter of 2019.

Line of Business Results

Personal insurance

  Three months ended September 30 Nine months ended September 30
  2020 2019 Change 2020 2019 Change
GWP1
   Auto 369.2 356.3 3.6% 996.2 939.3 6.1%
   Property 209.3 174.4 20.0% 549.6 462.4 18.9%
Total 578.5 530.7 9.0% 1,545.8 1,401.7 10.3%
Combined ratio1,2
   Auto 93.5% 114.3% (20.8) pts 96.8% 110.6% (13.8) pts
   Property 93.2% 92.6% 0.6 pts 93.4% 97.9% (4.5) pts
Total 93.4% 107.5% (14.1) pts 95.7% 106.7% (11.0) pts
Adjusted combined ratio1,2
   Auto 89.0% 108.6% (19.6) pts 90.7% 104.2% (13.5) pts
   Property 92.4% 89.7% 2.7 pts 91.7% 95.6% (3.9) pts
Total 90.2% 102.4% (12.2) pts 91.0% 101.4% (10.4) pts

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

2 The underwriting activity of Sonnet in 2019 and 2020, and the expenses pertaining to our investment in the development as well as the implementation of the Vyne platform in 2019, 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 table above to show the combined ratios with and without these investments.

Overall, personal lines premiums increased 9.0% in the quarter. Sonnet generated GWP of $71.0 million, an increase of 12.3% over the same quarter a year ago, while the broker business grew by 8.6% driven by an increase in personal property. Personal lines produced underwriting income of $32.2 million in the quarter, representing an improvement of $65.9 million over the same quarter a year ago. Year to date, personal lines produced underwriting income of $60.0 million compared to an underwriting loss of $86.8 million in the same period of 2019.

Personal auto premiums increased 3.6% in the quarter, driven by rate increases approved in 2019, an increase in new business and retention, and the growth in Sonnet, partially offset by the impact of customer relief actions. The adjusted combined ratio in the quarter of 89.0% improved due primarily to lower auto claims frequency which benefitted from COVID-19 related reduced activity levels, and our underwriting and broker management actions to improve profitability.

Personal property premiums increased 20.0% in the quarter, bolstered by rate increases put in place over the course of 2019, as well as strong growth in our broker and direct channels. The adjusted combined ratio in the quarter of 92.4% was solid, and benefitted from low levels of catastrophe losses, but increased slightly from the same quarter a year ago. This was driven by an increase in the core accident year claims ratio and a shift from favourable to adverse claims development. These were partially offset by rate increases from 2019 earning through and a decrease in catastrophe losses.

Commercial insurance

  Three months ended September 30 Nine months ended September 30
  2020 2019 Change 2020 2019 Change
GWP1
Auto 74.8 56.6 32.2% 208.3 172.0 21.1%
Property and liability 100.6 87.4 15.1% 304.7 270.3 12.7%
Total 175.4 144.0 21.8% 513.0 442.3 16.0%
Combined ratio1
Auto 86.5% 102.0% (15.5) pts 93.8% 97.8% (4.0) pts
Property and liability 102.8% 102.2% 0.6 pts 103.2% 105.4% (2.2) pts
Total 95.6% 102.1% (6.5) pts 99.2% 102.3% (3.1) pts

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

Overall, commercial lines premiums increased 21.8% in the quarter, as we continued to focus on growth in this line of business after a period of portfolio rehabilitation, underwriting actions, and rate increases. Commercial lines produced underwriting income of $6.9 million in the quarter compared to an underwriting loss of $3.1 million in the same quarter a year ago. Year to date, commercial lines achieved a combined ratio of 99.2% and produced underwriting income of $3.7 million, compared to an underwriting loss of $10.6 million in the same period of 2019.

Commercial auto premiums increased 32.2% in the quarter, driven by strong renewals, new business, rate increases, and our new relationship with Uber. On August 18, we announced a new and significant relationship with Uber in Canada which launched on September 1, designed to provide insurance coverage for every Uber Rides and Uber Eats trip in Alberta, Ontario, Quebec, and Nova Scotia. The new relationship with Uber is part of our wider strategy to diversify our book of business and complement our regular P&C lines business with new specialty lines products.

The combined ratio of 86.5% in the quarter decreased from the same period a year ago due primarily to our underwriting and portfolio management actions to improve profitability, in addition to lower auto claims frequency as a result of COVID-19.

Commercial property and liability premiums increased 15.1% in the quarter, driven by new business and rate increases. The combined ratio of 102.8% increased slightly due to an increase in catastrophe losses as we continued to take a prudent approach to reserving for COVID-19 related exposures. This was largely offset by the benefits of our underwriting actions and improvement in the underlying portfolio.

Investment income

  Three months ended September 30 Nine months ended September 30
  2020 2019 Change 2020 2019 Change
Interest income 18.4 20.1 (1.7) 57.6 62.1 (4.5)
Dividend income 7.3 6.8 0.5 21.7 20.8 0.9
Total interest and dividend income 25.7 26.9 (1.2) 79.3 82.9 (3.6)
Total recognized  gains on investments 7.7 5.7 2.0 75.9 77.0 (1.1)
Total investment income 33.4 32.6 0.8 155.2 159.9 (4.7)

Total interest and dividend income decreased slightly in the quarter and year to date compared to the same periods in 2019, due primarily to lower yields on our fixed income portfolio. Recognized gains on investments in the quarter increased due primarily to higher gains on bonds, partially offset by lower gains on common stocks. For the year, recognized gains on investments decreased slightly reflective of the significant volatility in global equity markets in 2020 as a result of the COVID-19 pandemic and reduced trading activity in our investment portfolio.

Net income increased to $45.6 million compared to a net loss of $7.6 million in the third quarter of 2019 due primarily to our improved underwriting performance. Year to date, net income increased by $76.6 million.

Economical’s capital position remained well in excess of both minimum internal capital and external regulatory requirements as of September 30, 2020, despite the volatile investment environment, with total equity exceeding $1.7 billion and a Minimum Capital Test ratio of 253%.

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 $2.7 billion in annualized gross written premiums and over $6.4 billion in assets as at September 30, 2020. Economical is a Canadian-owned and operated company that services the insurance needs of more than one million customers.

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