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Combined ratio down 9.6 points, net income more than quadruples for Intact Financial


November 5, 2014   by Canadian Underwriter


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Intact Financial Corp. released Wednesday its financial results for the three months ending Sept. 30, reporting a 9.6-point improvement in its combined ratio and a 53.7% drop in Q3 catastrophe losses, while net income improved 330%.

Toronto-based Intact also said Wednesday that company officials are “encouraged” by an Ontario government omnibus bill currently before legislative committee but they believe additional measures will be necessary to achieve the Ontario government’s goal to have private passenger auto premiums 15% lower next August than they were in August, 2013.

Intact Financial’s operations include Intact Insurance, non-standard Ontario auto carrier Jevco, direct writers Grey Power and Belair Direct as well as BrokerLink.

Intact Financial’s combined ratio improved 9.6 points, from 102.8% in the third quarter of 2013 to 93.2% in the latest quarter. Net catastrophe losses dropped from $270 million in Q3 2013 to $125 million in Q3 2014. The Q3 2014 cat losses “were driven largely” by a hail storm in early August affecting properties in and near Airdrie, Alberta.

Intact Financial reported underwriting income of $124 million in Q3 2014, compared to an underwriting loss of $50 million in Q3 2013.

“Our operating and financial results continued to significantly improve during the quarter despite the high cost of damage caused by severe weather,” Intact chief executive officer Charles Brindamour stated in a release.

“Our personal insurance business is performing well, reflecting the successful implementation of our property improvement initiatives and the continued solid contribution of our auto insurance activities. Our commercial P&C insurance results were strong, and we are continuing our efforts to ensure their sustainability. Our strong profitability and financial position enhance our ability to pursue growth prospects.”

The company’s third-quarter direct written premiums were essentially unchanged, at $1.911 billion in 2013 and $1.913 billion in 2014. Of its direct written premiums in Q3 2014, $909 million was in auto, $445 million was in property and $8 million was from industry pools.

Q3 net premiums written rose from $1.854 billion in 2013 to $1.905 billion in 2014. Net claims incurred dropped 8.6%, from $1.265 billion in Q3 2013 to $1.156 billion in the most recent quarter.

The net claims ratio for the third quarter dropped from 71.4% in 2013 to 63.6% in 2014. The underlying current year loss ratio improved 0.6 points, from 61.7% in Q3 2013 to 61.1% in Q3 2014.

“Our personal lines businesses generated a solid 96.4% combined ratio, 6.5 points improved versus Q3-2013, as lower catastrophe losses in property and a one point improvement in the underlying current year loss ratio more than offset less favourable prior year claims development in auto,” Intact Financial said in its management discussion and analysis for investors.

“Although we reported an 84.7% combined ratio in our commercial P&C business in Q3-2014, the year to date performance at 96.7% does not meet our target level of profitability. As such, we will continue to take corrective actions with the objective to operate this business at a full year combined ratio in the low 90s. Our expense ratio improved 1.8 points versus Q3-2013 to 29.6%, driven by lower general expenses and variable commissions.”

Net investment income increased 2%, from $104 million in Q3 2013 to $106 million in the most recent quarter.

Q3 net income was $202 million in 2014, up 330% from $47 million in 2013.

For the first nine months of the year, the combined ratio in personal property improved by 10 points, from 104.% in 2013 to 94.4% this year.

“We continue to renew at higher rates and to transfer remaining two-year policies in personal property to one-year policies in Québec,” Intact reported in its MD&A. “Higher deductibles, sub-limits on sewer back-up coverage, and more transparent product pricing displaying premiums by type of peril have now been rolled out in all provinces and are being applied upon renewal. In Alberta, depreciated value on roofs is also being applied upon renewal for claims caused by wind and hail.”

In its MD&A, Intact also referred to changes made in 2010 to Ontario’s private passenger auto policy. That was when payments under the minor injury guideline were capped at $3,500, and — under coverage mandated by Ontario law — the medical, rehabilitation and attendant care benefits were reduced by 50% and the income replacement benefit was reduced from 80% to 70% of income.

“We continue to see the benefits of the reforms and of our actions, however, we remain prudent in our approach to the business, as uncertainty remains in the system.”

Intact also referred to the amendments, which took effect in August, 2013 to Ontario’s Automobile Insurance Rate Stabilization Act. That law established an “industry-wide target reduction,” by 15%, of the “average of the authorized rates that may be charged by insurers” for private passenger auto, with a two-year target.

“This process to date has resulted in an average 6% industry rate reduction approved as of Q3-2014,” Intact said in its Q3 2014 MD&A, adding Intact Financial “has been reducing rates by 5.3% on average, targeting discounts to safe drivers.”

One of those strategies was its usage-based auto insurance that it launched earlier this year.

“Thanks to government measures announced last year, in addition to our own cost reduction initiatives, we believe we can protect our margins in the Ontario book of business,” Intact reported in its MD&A. “We believe the Ontario government fully understands that further rate reductions need to be accompanied by further cost reductions.”

Intact added that company officials are “encouraged” by Bill 15, an Ontario government bill that proposes a variety of reforms intended to reduce auto insurance claims costs.

The Standing Committee on General Government is scheduled to hold one day of hearings Nov. 5.

“Additional meaningful cost reduction measures will be necessary for the industry to achieve the government’s 15% average rate reduction target,” Intact said in its MD&A.

If passed into law with no amendments, Bill 15 would, among other things:

  • reduce the time period, from 60 days, that a vehicle storage firm can hold a vehicle and accumulate storage charges without giving notice to the owner and still be able to claim a lien for the storage costs;
  • require tow and storage providers to publish their rates, accept credit card payments and provide itemized invoices before receiving payment;
  • move the auto insurance claim dispute resolution system – currently handled by the Financial Services Commission of Ontario (FSCO) – to the Ministry of the Attorney General’s licence appeal tribunal;
  • reduce the prejudgment interest rate, for non-pecuniary loss for auto accident victims; and
  • give FSCO the authority to revoke or immediately suspend the licences of agents and adjusters who act improperly and put the public at risk.