Economical Insurance reports Q1 net income of $34.2 million, 2% increase in gross written premiums

Economical Insurance, a property and casualty insurance company in Waterloo, Ont., reported a combined ratio of 105.7% for Q1 2015, compared to the 105.5% reported in the same quarter a year ago, but also consolidated net income of $34.2 million for Q1 2015 compared to $1.0 million during the same period a year ago.

The improvement in net income was driven by higher investment income stemming from increased capital gains and a one-time after-tax discounting recovery of $12.0 million from the reduction of the interest rate margin within claim liabilities. According to Economical, the margin was reduced due to the significant reduction in bond yields during the quarter and is expected to reverse if interest rates were to increase.  

The company also reported a 2% increase in gross written premiums over Q1 2014.

“Our first quarter 2015 financial results were challenged by several headwinds,” said Karen Gavan, president and CEO of Economical Insurance, in a press release. “We continued to see the impact of the mandated rate reductions in Ontario auto causing average premiums to decline, and also experienced an increase in the number of large commercial property losses.”

Increased auto policy volumes in Ontario more than offset declines in average premiums as the mandated 2014 rate decreases continue to be implemented, Economical said in the press release. Commercial lines premiums declined by $1.9 million, or 1.1%, over the same quarter a year ago. Excluding the impact of fronting, commercial lines premiums increased by $3.9 million or 2.3% over the same quarter a year ago, driven primarily by rate increases. [click image below to enlarge]

Underwriting activity for the first quarter 2015 produced a $26.8 million underwriting loss compared to an underwriting loss of $25.1 million in the same quarter a year ago, and was impacted by mandated rate reductions in Ontario auto and an increase in large losses, Economical reported. Personal lines produced an underwriting profit of $7.9 million compared to $5.4 million in the same quarter a year ago.

The commercial auto combined ratio improved over the same quarter a year ago (106.7% compared to 102.7%), as higher claims severity was more than offset by improved claims development, the press release noted. Overall, commercial lines produced an underwriting loss of $25.2 million compared to a $30.5 million loss in the same quarter a year ago. [click image below to enlarge]

Personal property had a Q1 2015 combined ratio of 86.4% compared to 98.8% in Q1 2014. Total personal lines’ combined ratio also changed from 97.2% in the first quarter of 2015 compared to 98% in the first quarter of 2014.

However, Economical’s capital position remains strong, the press release concluded, with total equity of $1.72 billion at March 31, 2015, an increase of $41 million, or 2.4% since December 31, 2014.