Economical Insurance readying itself to become a leading force in Canada’s p&c industry

The time is nearing for Economical Insurance to unlock its “potential to compete on a level playing field with larger competitors and become a leading force in the Canadian property and casualty industry,” chairman Gerry Hooper said in prepared remarks at the company’s annual general meeting (AGM) Wednesday.

Pointing out “there are a few moments in history that shape the destiny of a company,” Hooper told attendees that “with the imminent arrival of final demutualization regulations, your Board of Directors can decide whether to proceed with demutualization and begin our journey towards becoming one of the top five P&C insurers in Canada.”

The potential “both operationally and through demutualization is something that we can all be incredibly proud of,” Hooper emphasized.

Since December 2010, when Economical Insurance first started on the path toward demutualization, it “has made significant progress growing the business and securing our financial strength,” he reported. The company today “is worth a lot more than it was when we first announced our intention to pursue demutualization,” he added.

“To compete on an equal footing with the leading Canadian and foreign-owned companies in our market, we are investing heavily in our long-term competitiveness and establishing a platform that will not only position us to deliver exceptional operating results, but to integrate future acquisitions, as well,” Hooper (pictured below right) said during the AGM.

Among the changes made to date is the completion of a major transformation of underwriting operations to make Economical Insurance “more productive, efficient and operating more effectively. We are now primed for future growth and long-term profitability in a constantly evolving marketplace,” he said.

“We know that by investing in our talent, we will build a team that will allow us to achieve our vision of making Economical one of Canada’s top P&C insurers, recognized for our business innovation and how well we take care of our customers,” said Karen Gavan, president and CEO of Economical Insurance.

Gavan pointed out that the cornerstone of Economical Insurance’s new operating model is its national processing centre in Kitchener, Ontario, where 227 employees process all personal lines and small-package commercial business from across the country, improving the agility and consistency of the company’s underwriting operations. “The scale and complexity of this change proves that Economical’s leadership and employees can handle the heavy lifting that will continue to be needed to position the company for profitable growth,” she said.

Related: Draft regulations for demutualization of p&c companies released

Although the industry has waited quite a while to see draft demutualization regulations, “the good news is that we have taken advantage of that time to become public-company ready, both operationally and in the sophistication we have built into our governance processes, financial reporting, compliance and risk management functions,” Gavan said.

“To be one of Canada’s top P&C insurers requires scale and outstanding performance,” Gavan said. Telling attendees that there have been eight major transactions involving Top 10 participants in the industry over the last five years, she noted these moves have affected more than 12% of total industry premiums.

Although currently with $1.7 billion in total equity, Economical Insurance would need to grow a lot more “for what we have in mind,” she explained.

“To grow from being the eighth largest P&C insurance company to the fifth largest means that we have to grow our top line by 50% or $1 billion,” she said, and that means organic growth alone will not be sufficient.

“Demutualization will give us the opportunity to access capital for ongoing investments in technology and innovation, to participate in the consolidation of the industry and to compete on a level playing field with our biggest competitors,” Gavan (pictured below) said.

Despite challenges, Hooper told AGM attendees that the company performed well in three of its four lines of business in 2014, ending the year with a net income of $84.2 million. “The corrective actions we began taking in 2014 should begin to be felt this year and in future years,” he said.

Gavan pointed out that with 4.2% market share, “our top line growth in premiums once again outperformed the Top 10 average.”

Despite the positives, Hooper emphasized that Economical Insurance’s “business model must continue to evolve to keep pace.”

Looking forward, Gavan said there are challenges facing Canada’s P&C industry. “We believe the weak economic environment will continue to constrain growth.”

Related: Draft P&C demutualization rules aim to treat non-mutual policyholders fairly: Economical

In addition, there is the influence of such things as the mandated Ontario auto insurance rate reductions, as well as the continuing severe weather caused by climate change, which “will continue to affect the industry and result in higher claim costs This is expected to affect underwriting results in both personal and commercial property lines and over time should encourage firmer pricing conditions and more sophisticated insurance products,” Gavan said.

“Scale is critical to achieving long-term, sustainable competitive advantage.

In the face of these challenges, our industry has no choice but to focus on improving underwriting profitability,” she said during AGM. “For our part, we treat those challenges as a tremendous opportunity,” Gavan noted.