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Economical Insurance reports First Quarter 2021 financial results

·14 min read

HIGHLIGHTS

  • Our recently extended COVID-19 related measures bring our total customer relief to approximately $120 million, as we continue to assist our customers as they manage through the challenges of the ongoing pandemic

  • Gross written premiums increased 14.3% versus the first quarter of 2020, reflecting firm market conditions and our strategic expansions in Sonnet, commercial lines, and personal property

  • Benefits from underwriting actions and a reduction in auto claims frequency led to a combined ratio of 91.3%, representing a substantial year over year improvement of 10.8 points

  • Net investment income declined $3.6 million in the quarter, a headwind to performance that is expected to persist given low fixed income yields

  • Strong underwriting results drove net income of $82.4 million, bolstering our already solid financial position with total equity approaching $1.9 billion and MCT at 275%

WATERLOO, ON, May 14, 2021 /CNW/ - Economical Insurance today announced consolidated financial results for the three months ended March 31, 2021.

Economical Insurance reports First Quarter 2021 financial results (CNW Group/Economical Insurance)
Economical Insurance reports First Quarter 2021 financial results (CNW Group/Economical Insurance)

"We reported low-90s combined ratios in all three lines of business, resulting in an overall COR of 91.3% and underwriting income that was $70 million higher than a year ago. The improvement was driven by a reduction in claims frequency from reduced driving activity related to COVID-19, and ongoing actions to enhance profitability in commercial lines. Continued firm market conditions in property and most commercial lines, our strategic investments in digital platforms and talent, and our disciplined approach to pursuing growth opportunities have combined to deliver a 14.3% increase in premiums in the first quarter," said Rowan Saunders, President & CEO. "We are pleased with results in our digital direct business, Sonnet, which is making great progress as it continues to mature its business model, consolidate its customer base, and position for future growth. I believe we have built a solid base in advance of our planned demutualization later this year, which will be voted upon next week."

"The combination of $240 million in net income and a rebound in capital markets since the first quarter of 2020 has led to an increase in total equity of more than $350 million in that period – now approaching $1.9 billion for the first time," stated Philip Mather, EVP & CFO. "Increased cash generation from our improved underwriting results and strong premium growth should facilitate mitigating the impact of low fixed income yields in upcoming quarters."

"Looking ahead, we are continuing to provide relief across the business to support customers in need while continuing to drive growth strategically across our lines of business. While our recent profitability has been strong, the impact of our customer relief actions will take time to fully impact our results," noted Saunders. "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 have, and meeting the needs of our customers and broker partners."

Economical Insurance Consolidated Highlights ($ in millions, except as otherwise noted)




Three months ended March 31



2021

2020

Change

Gross written premiums1


658.7

576.2

14.3%

Net earned premiums


666.3

590.5

12.8%

Claims ratio1,2


58.5%

68.9%

(10.4) pts

Expense ratio1,2,3


32.8%

33.2%

(0.4) pts

Combined ratio1,2,3


91.3%

102.1%

(10.8) pts

Underwriting income (loss) 2


58.0

(12.3)

70.3

Investment income


13.4

39.6

(26.2)

Net income (loss)


82.4

(3.2)

85.6







As at




Mar 31, 2021

Dec 31, 2020

Change

Total equity


1,879.2

1,818.0

61.2

Minimum Capital Test


275%

268%

7 pts

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

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

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

Gross written premiums ("GWP") for the first quarter of 2021 increased by $82.5 million or 14.3% compared to the first quarter of 2020, as robust growth in commercial, personal property, and Sonnet was partly offset by the impact of customer relief actions related to COVID-19. These ongoing actions will continue to impact written and earned premiums in 2021 and into the following year. Personal lines premiums were up 9.4% over the same quarter a year ago, with increases in both our broker and direct businesses. Commercial lines premiums increased 29.1% over the same quarter a year ago, reflecting our increased capabilities and focus on growth in this line of business as well as our relationship with Uber which launched in the third quarter of 2020.

Underwriting activity for the first quarter of 2021 improved substantially, producing underwriting income of $58.0 million and a combined ratio of 91.3%, compared to an underwriting loss of $12.3 million and a combined ratio of 102.1% in the same quarter a year ago. The underwriting improvement of $70.3 million was due primarily to a decrease in the core accident year claims ratio. Key contributors to the improved claims ratio were lower claims frequency, benefitting from COVID-19 related reduced activity levels (which had a minimal impact in the first quarter of 2020), ongoing underwriting actions, lower levels of catastrophe losses, and favourable business mix shift to personal property. These were partially offset by the impact of our ongoing customer relief actions. Given the ongoing level of uncertainty around COVID-19, we continue to closely monitor the adequacy of our reserves as claims severity and frequency emerge.

Line of Business Results

Personal insurance


Three months ended March 31



2021

2020

Change

GWP1





Auto


302.7

290.0

4.4%

Property


171.2

143.1

19.6%

Total


473.9

433.1

9.4%

Combined ratio1





Auto


90.2%

107.0%

(16.8) pts

Property


91.5%

87.1%

4.4 pts

Total


90.7%

100.5%

(9.8) pts

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

Overall, personal lines premiums increased 9.4% in the quarter. Sonnet premiums increased by 28.9% over the same quarter a year ago. Our broker business grew by 7.3% driven primarily by growth in personal property. Personal lines produced underwriting income of $46.1 million in the quarter, representing an improvement of $48.1 million over the same quarter a year ago.

Personal auto premiums increased 4.4% in the quarter driven by improved new business and the growth in Sonnet, partially tempered by the impact of customer relief actions. The combined ratio of 90.2% in the quarter improved substantially from the same period a year ago due primarily to lower auto claims frequency which benefitted from COVID-19 related reduced activity levels, improved Sonnet results, and an increase in favourable claims development.

Personal property premiums increased 19.6% in the quarter, benefitting from the organic growth enabled by both Sonnet and VyneTM and continued firm market conditions. The combined ratio was strong, at 91.5%, although higher than a year ago due primarily to an increase in the core accident year claims ratio and a decline in favourable claims development. These were partially offset by lower levels of catastrophe losses.

Commercial insurance



Three months ended March 31



2021

2020

Change

GWP1


184.8

143.1

29.1%

Combined ratio1


93.0%

107.2%

(14.2) pts

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

Overall, the growth momentum in commercial lines continued in a firm market environment, with premiums increasing 29.1% in the quarter driven by improved retention, new business including the impact of our relationship with Uber, and strong rate achievement.

Commercial lines produced a combined ratio of 93.0% and underwriting income of $11.9 million in the quarter compared to 107.2% and an underwriting loss of $10.3 million in the same quarter a year ago. The significant improvement was the result of underwriting and portfolio management actions, lower claims frequency as a result of COVID-19, lower levels of catastrophe losses, and favourable claims development.

Investment income



Three months ended March 31



2021

2020

Change

Interest income


17.4

20.3

(2.9)

Dividend income


6.9

7.2

(0.3)

Investment expenses


(1.4)

(1.0)

(0.4)

Net investment income


22.9

26.5

(3.6)

Total recognized (losses) gains on investments


(9.5)

13.1

(22.6)

Total investment income


13.4

39.6

(26.2)

Net investment income decreased in the quarter as compared to the first quarter of 2020, due primarily to the negative impact on interest income from lower yields. Recognized losses on investments in the quarter were due to unrealized losses on bonds, driven by a significant increase in bond yields in the quarter, outweighing realized gains on our equity portfolio.

Net income increased to $82.4 million compared to a net loss of $3.2 million in the first quarter of 2020 due primarily to our improved underwriting performance.

Economical's capital position remained well in excess of both minimum internal capital and external regulatory requirements as of March 31, 2021, with total equity of approximately $1.9 billion and a Minimum Capital Test ratio of 275%.

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 $2.9 billion in annualized gross written premiums and over $6.5 billion in assets as at March 31, 2021. 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 its 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 ability to maintain its financial strength rating;

  • 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 operational, 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 and cyclical nature of the P&C insurance industry;

  • 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, or a single claim with a gross
loss in excess of $3 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.

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.

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 but less
than $3 million.

Minimum capital test (MCT)

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.

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.

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 (COR)

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
Cision

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