Combined ratio improves 3.7 points, direct premiums written up 5% for Intact Insurance’s parent

Intact Financial Corp., which has the greatest market share in the Canadian property & casualty insurance market, released Wednesday its financial results for the three months ending March 31, reporting a 5% increase, from Q1 2014, in direct premiums written, and a combined ratio of 93.4%, down 3.7 points from 97.1% in Q1 2014, while essentially breaking even in personal auto.

In its management discussion and analysis for the first quarter, Toronto-based Intact also commented Wednesday in detail on recent developments in Ontario auto. Intact reported it has taken “additional” private passenger auto rate decreases in Ontario due to the passage last November of Bill 15 and suggested the effect on claims costs, of the Ontario auto measures announced April 23 in the 2015-16 budget, will “become more apparent as these measures are defined in regulation.”

Intact writes commercial and personal insurance through Intact Insurance, Belair Insurance Company Inc. and Jevco Insurance Company, among others. Intact previously said it plans to rebrand Grey Power to belairdirect to consolidate its brands.

On Wednesday, Intact reported direct premiums written of $1.572 billion in the three months ending March 31, up 5% from $1.503 billion in the same period in 2013. Underwriting income increased 131%, from $51 million in Q1 2014 to $118 million in the most recent quarter.

“The underlying strength of our operations allowed us to deliver another good quarter in Q1-2015, in spite of record cold temperatures in parts of Canada impacting most lines of business,” chief executive officer Charles Brindamour stated in a release. “Our property lines of business performed well thanks to our corrective actions to improve profitability, while our auto lines of business were particularly impacted by the winter weather.”

In personal auto, Intact reported an underwriting loss of $3 million on direct premiums written of $703 million, compared to underwriting income of $25 million in direct premiums written of $697 million in Q1 2014. The combined ratio deteriorated by 3.3 points, from 97% in Q1 2014 to 100.7% in the most recent quarter, “due to difficult winter conditions in Québec and Atlantic Canada,” Intact reported.

In its MD&A, Intact alluded to Ontario’s Automobile Insurance Rate Stabilization Act, which in 2013 established an “industry-wide target reduction,” by 15% over two years, of the average private passenger auto premium. Since then, Ontario insurers have been required to “propose rates and a risk classification system that contribute adequately to the achievement of” that 15% target.

“This process has resulted in an average rate reduction of approximately 7.1% for the industry as of Q1-2015,” Intact said Wednesday in its MD&A. “Government cost reduction measures to date include tightening of the Minor Injury Guideline back towards its original intent and licensing of health care clinics to reduce fraud.”

Bill 15, an omnibus law aimed at reducing auto insurers’ costs, is “becoming effective as regulations are defined in 2015,” Intact added Wednesday in its MD&A. “For example, a recent Ontario Superior Court decision clarified that the mandated reduction in pre-judgment interest to levels closer to current interest rates should be applied retroactively. We therefore reflected in Q1-2015 our initial assessment of the anticipated savings.”

Bill 15 reduces the prejudgment interest rate for non-pecuniary loss for personal injury in auto collisions, which was 5% last October,

“Other savings from Bill 15 that are in the process of being implemented include a streamlining of the dispute resolution system and protection for consumers against untrustworthy towing and storage providers,” Intact said in its MD&A. “In recognition of Bill 15, we elected to take additional rate reductions for a cumulative average of 9.6% since August 2013.”

Bill 15 changes Ontario’s Consumer Protection Act to require tow and storage providers to publish their rates, accept credit card payments and provide itemized invoices before receiving payment. It also reduces, from 60, the number of days that a vehicle can be stored after an accident without giving notice to the owner and other persons and still claim a lien for those costs. Also under Bill 15, the dispute resolution system, for statutory accident benefits, will move from the Financial Services Commission of Ontario (FSCO) to the Ministry of the Attorney General’s licence appeal tribunal. Insured persons and insurers will also be prohibited from bringing such disputes into court, other than appeals from the Licence Appeal Tribunal or application for judicial review.

Intact also alluded to the Ontario budget document for 2015-16, in which the ruling Liberals announced a number of future changes to the mandatory auto coverage that consumers must buy. For example, the limit for medical, rehabilitation and attendant care will be $65,000, whereas currently the mandatory coverage is $50,000 for medical and rehabilitation and $36,000 for attendant care. In the future, the mandatory coverage for catastrophic injuries will be a combined total of $1 million for medical, rehab and attendant care, whereas currently the current mandatory policy provides a $1 million limit for medical and rehab and an additional $1 million for attendant care.

“The budget also prescribed some measures through which the insurance industry is to translate the cost reductions into premium reductions,” Intact said in its MD&A. “We expect the net cost reduction benefit will become more apparent as these measures are defined in regulation.”

In personal property insurance Intact reported an 11.1-point improvement in its combined ratio, from 91.8% in Q1 2014 to 80.7% in the latest quarter, “helped by an absence of catastrophe losses this year compared to $47 million in catastrophe losses in Q1-2014,” the company stated.

Direct premiums written, in personal property, increased 15%, from $301 million in Q1 2014 to $344 million in Q1 2015. Underwriting income increased 147%, from $32 million in Q1 2014 to $79 million in Q1 2015.

Across all personal lines, Intact reported underwriting income of $76 million, up 33% from $57 million in Q1 2014, while hte combined ratio in personal lines improved 1.5 points, from 95.3% in Q1 2014 to 903.8% in the most recent quarter.

In commercial lines, the combined ratio improved 8.6 points, from 101.1% in Q1 2014 to 92.5% in the latest quarter. The first-quarter commercial property combined ratio improved 14.7 points, from 105.6% last year to 90.9% this year, “helped by rate increases under our action plan, low catastrophe losses and high favourable prior year claims development,” Intact stated in its MD&A. The combined ratio in commercial auto deteriorated by 7.1 points, from 89.3% in Q1 2014 to 96.4% in Q1 2015.

Total direct written premiums in commercial lines in Q1 2015 were $525 million ($386 million in property and $139 million in auto), up 4% from $505 million ($376 million in property and $129 million in auto) in Q1 2014. In commercial auto, Intact said it “continued to benefit from strong growth in trucking fleets” in personal property the company says it benefited from higher rates.

Intact reported underwriting income in commercial lines of $42 million in the latest quarter, compared to an underwriting loss of $6 million in Q1 2014.

Company-wide, Intact reported net income of $178 million in Q1 2015, up 11% from $160 million in Q1 2014. Net investment income was unchanged from Q2 2014, at $105 million.

On May 1, Intact completed its acquisition of Canadian Direct Insurance Inc., which writes home, auto and travel insurance to consumers in Alberta and British Columbia. In Alberta, Intact plans to integrate CDI’s operations with belairdirect, while maintaining the Canadian Direct brand in B.C.

Related: Intact Financial Corporation completes acquisition of Canadian Direct Insurance

In 2011, Intact had acquired the Canadian operations of AXA Group.

Known until 2009 as ING Insurance Company of Canada, Intact Financial also owns The Nordic Insurance Company of Canada, Novex Insurance Company, Trafalgar Insurance Company of Canada, IB Reinsurance Inc., Equisure Financial Network Inc. and Canada Brokerlink Inc.

Brokerlink operates personal and commercial lines brokerages in Ontario and Alberta, as well as Macdonald Chisholm Trask (MCT) Insurance, a brokerage with 16 offices in Nova Scotia, plus one each in Moncton, N.B. and St. John’s Nfld.

As of March 31, Intact reported in its management information circular that, to the knowledge of its directors and officers, no individual or corporation “beneficially owns, directly or indirectly, or exercises control or direction over” common shares carrying more than 10% of voting rights.

In 2013, Intact had 15.68% of P&C premiums in Canada in 2013, according to Canadian Underwriter’s Statistical Issue. Aviva plc and the Toronto Dominion Bank were second and third respectively in 2013, with 8.37% and 6.56% market share, though Desjardins General Insurance Group Inc. has now overtaken TD, with Desjardins’ acquisition of State Farm’s Canadian operations.