Q1 combined ratio ex-MYA 101.6% for Desjardins General Insurance

Desjardins General Insurance Group reported Thursday an underwriting loss, excluding market yield adjustment, of $17.2 million during the three months ending March 31, while premiums dropped 11% from the same period of last year.

Direct premiums written dropped from $1.04 billion in Q1 2016 to $923.6 million in the most recent quarter, reported Levis, Quebec-based DGIG.

“This drop in premiums was due predominantly to the impact of the conversion of State Farm auto policies from six to 12 months done during the previous year and to rate decreases in Ontario as a result of the Government’s June 1, 2016 auto insurance reform,” DGIG said in a release.

Desjardins Group closed its acquisition of the Aurora, Ont.-based Canadian operations of State Farm in 2015. Desjardins uses the State Farm brand in Canada but its property and casualty insurance is now written by Certas. The acquisition included State Farm’s, life, mutual fund, loan and living benefits operations in Canada. The Canadian operations of State Farm includes about 500 agencies.

In Ontario, several changes in insurance regulations took effect for motor vehicle accidents on or after June 1, 2016. For accident benefits, vehicle owners have to buy $65,000 in coverage for medical and rehabilitation benefits and attendant care. Before, they had to buy two separate coverages – $50,000 for medical and rehab benefits and $36,000 for attendant care. The mandatory coverage was twice those amounts before 2010. The mandatory coverage for catastrophic injuries also changed such that policyholders only have to buy $1 million in coverage for medical, rehab and attendant care. Previously, Ontario vehicle owners had to buy $1 million in medical and rehabilitation coverage and a separate $1 million limit in attendant care.

In its first-quarter financial results, Desjardins reported DGIG had a combined ratio of 101.6% in the latest quarter, down slightly from 101.9% in Q1 2016. But the underwriting loss, excluding market yield adjustment, rose from $12.3 million in Q1 2016 to $17.2 million during the first quarter of 2017.

Investment income, excluding gains or losses on matched bonds, dropped from $49.5 million in Q1 2016 to $44.9 million in the most recent quarter. DGIG reported a net loss of $11.4 million in the latest quarter, compared to net income of $31.5 million in Q1 2016.

“These results were due to a challenging winter, with damages caused by water and heavy snow in Quebec and a major windstorm in Ontario,” DGIG said. “Losses caused by those difficult weather conditions were partially offset by favorable development on loss reserves from previous years, a portion of which is owed back to State Farm in connection with the acquisition agreement of its Canadian operations.”

On Feb. 16, DGIG’s parent company announced it agreed to sell Western Financial Group and Western Life Assurance to Trimont Financial Ltd. That agreement is subject to regulatory approval and other closing conditions. Trimont and Desjardins said earlier they expect the $775-million deal to close this year. Trimont is a subsidiary of The Wawanesa Mutual Insurance Company.

Once the deal closes Desjardins will have “more time to focus on further integrating State Farm,” wrote Joel Baker, president and chief executive officer MSA Research Inc. suggested in MSA’s Quarterly Outlook Report Q4-2016, released April 18.

Western Financial – based in High River, Alta. – was founded in 1996 as Hi-Alta Capital Inc. by Scott Tannas, who is now a senator.

The brokerage arm of Western Financial Group has nearly 160 offices in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec.

“The original acquisition of WFG by Desjardins was somewhat odd given the disparity in distribution cultures,” Baker wrote in the MSA Quarterly Outlook Report. “True integration never happened and it caused some headaches for the broker community. The sale to Wawanesa made a lot of sense strategically for both companies – though the sticker price was high.”