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Economical Insurance gross written premiums up 6.7% to $550 million in third quarter of 2016 from prior-year quarter


November 7, 2016   by Canadian Underwriter


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Economical Insurance has reported that gross written premiums (GWP) were up by 6.7% to $550.3 million in the third quarter of 2016 ending Sept. 30 from $515.9 million in Q3 2015.

In the first nine months of 2016, GWP were $1.562 billion from $1.510 billion in 9M 2015.

Smart Phone with a graph illustrationPersonal lines premiums grew by $13.5 million, or 3.9%, driven primarily by increased auto policy volumes, Waterloo, Ont.-based Economical Insurance reported in a press release issued on Friday. Commercial lines premiums grew by $20.9 million, or 12.6%, over the same quarter a year ago, driven by targeted rate increases for commercial property, increased fleet business and the earlier renewal date of certain large accounts. Year-to-date, personal lines premiums grew by $40.6 million, or 4.3%, and commercial lines premiums grew by $11.4 million, or 2%, over the same period a year ago.

The combined ratio was 116.1% for Q3 2016, up 26.3 points from 89.8% in Q3 2015. For the first nine months of the year, the combined ratio was 107.3%, from 97.1% in 9M 2015.

By line of business, the combined ratio for personal auto was 104.1%, up 17.6 points from 86.5% in Q3 2015. The personal auto combined ratio was impacted by higher catastrophe and large losses and an increase in claims frequency, Economical said in the release, adding that “the third quarter of 2015 benefited from increased levels of favourable claims development that arose from one-time regulatory reforms which reduced reserves for certain open claims, resulting in a 10.1 percentage point reduction on the combined ratio.”

Personal property’s combined ratio for Q3 2016 was 112.9% from 89.5% in Q3 2015. The personal property combined ratio increased due to higher catastrophe losses, resulting in an 18 percentage point increase on the combined ratio, and an increase in claims severity, which was partially offset by higher average premiums, Economical reported. Overall, personal lines produced an underwriting loss of $21.1 million compared to underwriting income of $37.4 million in the same quarter a year ago. Year-to-date, personal lines produced underwriting income of $3.3 million compared to $62.6 million in 2015.

The combined ratio for commercial auto was 99.3% in Q3 2016, up 20.3 points from 79% in the third quarter of 2015. “The commercial auto combined ratio was impacted by higher claims severity and an increase in claims frequency, whereas the third quarter of 2015 benefited from the same one-time regulatory reforms which impacted personal auto, resulting in an 11.9 percentage point reduction on the combined ratio,” the release said.

The commercial property and liability combined ratio increased to 120% in Q3 2016 from 93.3% in Q3 2015, due to significantly higher large losses, partially offset by an increase in average premiums due to underwriting and pricing actions, the release said. Overall, the combined ratio for the most recent quarter was 112.2% from 88.2% in Q3 2015. Commercial lines produced an underwriting loss of $21.8 million compared to underwriting income of $21.5 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting loss of $36.4 million, compared to underwriting income of $3.9 million in 2015.

Net income decreased from $66.1 million in the same quarter a year ago to a loss of $27.6 million and from $134.1 million year-to-date in 2015 to $18 million, “as weaker underwriting performance and continued spend on our strategic initiatives more than offset the increase in investment income,” Economical reported.

Underwriting activity for the third quarter 2016 produced a $79.3 million underwriting loss, compared to underwriting income of $48.9 million in the same quarter a year ago. Catastrophe and large losses impacted the combined ratio by 12.9 percentage points in the quarter compared to 5 percentage points in the same quarter a year ago. There was also an increase in claims frequency and severity. Comparatively, the third quarter of 2015 benefited from relatively benign weather conditions and increased levels of favourable claims development that arose from one-time regulatory reforms which reduced reserves for certain open claims. Year-to-date, underwriting activity produced a $106.3 million underwriting loss compared to underwriting income of $41.7 million in the same quarter a year ago. “Year-to-date, our underwriting results were significantly impacted by increased catastrophe and large losses, including the Fort McMurray wildfire, an increase in claims frequency and severity and increased spend on our strategic investments,” the release said.

“We also continue to make significant investments in Sonnet, supporting infrastructure, and the replacement of our policy administration system which impacted the third quarter 2016 expense ratio by 7.6 percentage points compared to 2.1 percentage points in the same quarter a year ago,” Economical added in the release. “We expect these strategic investments will continue to increase operating expenses during the implementation and start-up phases, but are expected to drive profitable growth and further improve our operational efficiency in the longer term.”

Economical fully launched its direct digital offering Sonnet in the third quarter, now offering both personal property and auto insurance. Also in May, the company announced its intention to acquire Western Financial Insurance Company and its flagship brand Petsecure.

John Bowey, Economical board chair, noted in the release that the company’s third quarter results were significantly impacted by a number of different factors. “Heightened storm activity resulted in Economical incurring catastrophe losses in six separate events during the quarter,” Bowey said. “We also saw a sizeable increase in large losses, primarily in our commercial property and liability line of business, and increases in claims frequency and severity.”

The company also continues to make “significant investments” in Sonnet, supporting infrastructure and the replacement of its policy administration system. “We would like to welcome Rowan Saunders as our new president and CEO effective November 1, 2016, and to thank Karen Gavan for the significant progress made under her leadership,” Bowey added.

Founded in 1871, Economical has more than $2.1 billion in annualized premium volume and $5.5 billion in assets as of Sept. 30, 2016. The Canadian-owned and operated company services the insurance needs of more than one million customers across the country.


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1 Comment » for Economical Insurance gross written premiums up 6.7% to $550 million in third quarter of 2016 from prior-year quarter
  1. Bob Hutton says:

    It would be interesting to know the effect of the Fort McMurray disaster and of that loss how much is covered by catastrophy insurance / reinsurance

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