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Economical Insurance’s combined ratio improves 4.7 points in 2015 from 2014


February 21, 2016   by Canadian Underwriter


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Waterloo, Ont.-based Economical Insurance reported on Friday a combined ratio of 97.4% for the full-year 2015, a 4.7 point improvement from the 2014 combined ratio of 102.1%. For the fourth quarter of 2015, ending Dec. 31, 2015, the combined ratio improved one point to 98.5% from 99.5% in Q4 2014.

Economical said in a press release that gross written premiums for Q4 2015 grew by $5.5 million, or 1.1%, over the same quarter in 2014. The company “delivered the highest levels of both gross written premiums and net income for any year” in its 145-year history. Net income increased by $3.2 million over the same quarter a year ago. Net income for the full year 2015 more than doubled from $84.2 million to a record $176 million, driven by stronger underwriting performance and increased investment income, the P&C company said. [click image below to enlarge]

The commercial property and liability combined ratio significantly improved over the same quarter a year ago – from 110.7% in Q4 2014 to 101% in Q4 2015

Personal lines premiums grew by $18.7 million, or 6.7%, over the same quarter a year ago. “This growth was primarily driven by increased auto policy volumes in Ontario, Alberta and B.C., as well as continued growth in personal property primarily driven by targeted rate increases and increased policy volumes,” Economical explained in the release.

Commercial lines premiums declined by $13.2 million, or 6.2%, over the same quarter a year ago. “The overhaul of our commercial pricing strategy has continued to result in decreased policy volumes, which more than offset targeted rate increases,” Economical said. Year-to-date, personal lines premiums grew by $65.1 million, or 5.5%, while commercial lines premiums declined by $19.7 million, or 2.5%, over the same period a year ago.

Underwriting activity for the fourth quarter 2015 produced a $7.2 million underwriting profit, resulting in a combined ratio of 98.5%, compared to an underwriting profit of $2.5 million and a combined ratio of 99.5% in the same quarter a year ago. The strong operating performance was driven by the improved performance of the company’s commercial lines and a reduction in catastrophe and large losses. “This was somewhat offset by a strengthening of reserves for Ontario auto accident benefits and to reflect our current views on Ontario auto reforms implemented in 2015, in light of recent court decisions.”

Regarding combined ratios, the personal auto combined ratio improved over the same quarter a year ago – from 98.5% in Q4 2014 to 97.6% in Q4 2015 – due to a decrease in large losses and improved loss development, somewhat offset by an increase in claim frequency, Economical reported. The personal property combined ratio improved slightly from 80% in Q4 2014 to 79.2% in the most recent quarter, driven by targeted rate increases. [click image below to enlarge]

 Net income for the full year 2015 more than doubled from $84.2 million to a record $176 million

Overall, personal lines produced an underwriting profit of $24 million compared to $20.2 million in the same quarter a year ago. Year-to-date, personal lines produced an underwriting profit of $86.5 million compared to $32.8 million in 2014. “This significant improvement was driven by both auto and property lines, with property in particular recording a strong operating performance due to targeted rate increases and favourable weather conditions throughout the year,” the release said.

The commercial auto combined ratio improved over the same quarter a year ago – from 108.1% in the fourth quarter of 2014 to 101.9% in the most recent quarter – primarily due to decreased claim severity, particularly in Ontario, and decreased claim frequency, particularly in Alberta. The commercial property and liability combined ratio significantly improved over the same quarter a year ago – from 110.7% in Q4 2014 to 101% in Q4 2015 – as “underwriting and pricing actions began to take hold,” the release said, adding that benign weather conditions also contributed to the improved performance.

Overall, commercial lines produced an underwriting loss of $2.4 million compared to $17.7 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting profit of $1.5 million compared to an underwriting loss of $71.2 million in 2014.

“As we prepare for our future as a public company, we are delighted by our quarterly and record full-year performance,” said Karen Gavan, Economical president and CEO, who recently announced that she will retire at the end of 2016 at the end of her contract. “Economical achieved a significant milestone in 2015 with gross written premiums for the year exceeding $2 billion for the first time in our history. This substantial achievement comes despite taking corrective underwriting and pricing actions and after the impact of mandated Ontario auto rate decreases.”

Also, as part of the company’s strategy to drive profitable growth, it is “investing heavily in the development of a multi-channel distribution platform. The investment in the replacement of our policy administration system will support both a separately branded direct-to-consumer distribution channel and our existing core broker channel.”


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