Desjardins General Insurance Group’s combined ratio improves 4.6 points in Q4 2015 from Q4 2014

Desjardins General Insurance Group (DGIG), a Desjardins Group subsidiary specializing in property and casualty insurance, has reported a combined ratio of 88% for the fourth quarter of 2015, ending Dec. 31, 2015, down from 92.6% in the same quarter of 2014. For the full-year 2015, the combined ratio was 89.3%, down from 93.8% for the 2015 full-year. The ratios exclude market yield adjustment.

DGIG released its financial results on Wednesday, noting that direct premiums written increased by 87.4% for the fourth quarter of 2015, from $526.2 million in Q4 2014 to $986.3 million in the most recent quarter. DPWs increased by 83% for the year to about $4.092 billion in 2015, from about $2.236 million in 2014, bolstered by the acquisition of State Farm’s Canadian P&C insurance operations and strong organic growth. [click image below to enlarge]

“This was a pivotal year for DGIG, thanks to the acquisition of State Farm’s Canadian operations,” said Monique F. Leroux, chair of the board and president and CEO of Desjardins Group, and CEO of DGIG. “Although the integration is only partially completed, DGIG’s solid financial results illustrate the positive benefits from its larger scale and enhanced market reach.”

For the fourth quarter of 2015, net income was $102.3 million (compared to $22.1 million in 2014). Return on equity (ROE) was 21.1%, well above the 7.2% recorded in the same period last year. Net income for 2015 was $328.8 million, an increase of 117.3% compared to 2014; ROE was 17%, up from 12.9% in 2014. “Net income and ROE both benefitted from the business acquired from State Farm, a one-time gain of $55.1 million related to the transaction (which closed on January 1, 2015), and the absence of catastrophic events this year,” DGIG said in the statement, adding that these benefits were partially offset by lower return on investments.

DGIG president and COO Sylvie Paquette said that despite integration challenges, DGIG had a very good year. “Our profitability and organic growth are above the market, our integration is on track, and we took a major leap in our multi-network distribution capability with the addition of the State Farm agent network, the largest of its kind in Canada. We also continued to make solid progress with our customer experience strategy and cemented our leadership position in telematics, becoming the first insurer in North America to offer a 100% mobile telematics insurance program with the launch of the Ajusto app for smartphones.”

But Paquette noted two areas of concern for the company. “Excluding the business acquired from State Farm, our loss ratio for auto insurance compares unfavourably with DGIG’s overall loss ratio and with our auto insurance results in 2014,” she said, adding that the company is “monitoring the trend very closely and will take appropriate action, if needed.”

The other area of concern is the impact of the prolonged low yield environment on DGIG’s investment income and profitability. “Low interest rates are a growing challenge for all insurers, but DGIG is better positioned than most because of its long history of underwriting discipline,” Paquette said in the statement. “We have generated an underwriting profit for 23 straight years, a remarkable achievement in such a cyclical industry.”