Market Overview

Economical Insurance reports Third Quarter 2020 financial results

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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, Nov. 5, 2020 /CNW/ - 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.

Forward-looking statements

Certain of the statements made in this news 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 news 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, including COVID-19 related class action lawsuits that have arisen and which may arise, together with associated legal costs;
  • Economical's ability to obtain adequate reinsurance coverage to transfer risk;
  • Economical's ability to accurately predict future claims frequency or severity, including the frequency and severity of weather-related events and the impact of climate change;
  • 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 attract, develop, motivate, and retain an appropriate number of employees with the necessary skills, capabilities, and knowledge;
  • Economical's ability to appropriately manage and protect the collection and storage of information;
  • Economical's reliance on information technology and telephony 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, including fraud in the course of underwriting insurance or settling insurance claims;
  • 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;
  • the impact of public health crises, such as pandemics or other health risk events including the COVID-19 pandemic, and their associated economic, legislative and regulatory impacts, including impacts on Economical's ability to maintain operations and provide services to customers and on the expectations of governmental or regulatory authorities concerning the provision of customer relief;
  • 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 and liquidity effectively; and
  • periodic negative publicity regarding the insurance industry or Economical.

All of the forward-looking statements included in this news 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.

Customer relief

Actions taken to ease the burden of the pandemic on our individual and business customers, in the form of rate relief and flexibility in underwriting rules. Major actions include measures such as payment deferrals, rate reductions, rate rebates, enhanced mileage discounts, and waiving NSF fees.

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.

Underwriting income (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.

Also included in this news 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 the underwriting activity of Sonnet and, for portions of 2019, our investment in the development and implementation of the Vyne platform.

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.

 

SOURCE Economical Insurance

Cision View original content to download multimedia: http://www.newswire.ca/en/releases/archive/November2020/05/c0307.html

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