Economical Insurance’s combined ratio improves 18.4 points in Q3 2015 to 89.8%

Waterloo, Ont.-based property and casualty company Economical Insurance has reported a combined ratio of 89.8% for the third quarter of 2015 ending Sept. 30, an 18.4 point improvement from its Q3 2014 combined ratio of 108.2%.

The personal auto combined ratio improved over the same quarter a year ago (from 101.5% in Q3 2014 to 86.5% in Q3 2015) due to the company’s continued improvements in predictive analytics and pricing sophistication, the benefit from the regulatory reforms in Ontario (10 percentage point reduction in the combined ratio for the third quarter) and improved loss development, Economical Insurance said in a statement on Tuesday. For the nine months ending Sept. 30, the personal auto combined ratio was 93.7%, from 97.2% in the same period in 2014. [click image below to enlarge]

The personal property combined ratio improved 17.8 points from 107.3% in the third quarter of 2014 to 89.5% in the third quarter of 2015, due to targeted rate increases and benign weather conditions, which resulted in lower catastrophe losses and claims frequency, Economical reported. In 9M 2015, the personal property combined ratio was 90.9%, an improvement from 101.6% in the nine month period in 2014.

Overall, personal lines produced an underwriting profit of $37.4 million compared to an underwriting loss of $9.1 million in the same quarter a year ago. Year-to-date, personal lines produced an underwriting profit of $62.6 million compared to $12.6 million in 2014.

The commercial auto combined ratio improved from 92.8% in Q3 2014 to 79% in Q3 2015, primarily due to the benefit from the regulatory reforms in Ontario. The commercial property and liability combined ratio significantly improved over the same quarter a year ago (from 128.9% in Q3 2014 to 93.3% in Q3 2015 – a 35.6% improvement) primarily due to underwriting and pricing actions implemented over the past twelve months, improved loss development and a large decrease in both frequency and net claims severity resulting from benign weather conditions. In the nine month-period, the commercial auto combined ratio improved from slightly from 91.2% in the 2014 period to 90% in the current year period.

Overall, commercial lines produced an underwriting profit of $21.5 million compared to an underwriting loss of $29.2 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting profit of $3.9 million compared to an underwriting loss of $53.4 million in 2014.

“Economical delivered excellent performance during the quarter, with each line of business providing a strong contribution to our underwriting profit,” said Karen Gavan, president and CEO of Economical Insurance, in the statement. “The rate decreases mandated in 2014 for Ontario auto are now fully reflected, and we are encouraged by the recently enacted budget measures, which will provide some offsetting cost reductions. We continue to closely monitor rate adequacy in the context of a dynamic regulatory environment.”

Gavan added that the insurer’s “significant investment in information technology infrastructure upgrades” continued during the quarter, along with ongoing commercial pricing actions. [click image below to enlarge]

Economical noted that gross written premiums for the third quarter 2015 also grew by $14.6 million, or 2.9%, over the same quarter a year ago. Personal lines premiums grew by $20.4 million, or 6.2%, over the same quarter a year ago. “This growth was primarily driven by increased auto policy volumes in Ontario and British Columbia as well as growth in personal property primarily driven by increased policy volumes and targeted rate increases,” the statement said.

Commercial lines premiums declined by $5.8 million, or 3.4%, over the same quarter a year ago. Economical said that the overhaul of its commercial pricing strategy has resulted in decreased policy volumes, which more than offset targeted rate increases. Year-to-date, personal lines premiums grew by $46.4 million, or 5.1%, while commercial lines premiums declined by $6.5 million, or 1.2%, over the same period a year ago.

Underwriting activity for the third quarter of 2015 produced a $48.9 million underwriting profit, resulting in a combined ratio of 89.8%, compared to an underwriting loss of $38.3 million, resulting in a combined ratio of 108.2%, in the same quarter a year ago. “This considerable improvement was due to the strong underlying performance in all lines of business and reduced catastrophe losses,” Economical said in the statement. “There was also a significant benefit from the regulatory reforms enacted in Ontario during the quarter, resulting in a reduction in reserves for certain open claims. These reforms partially offset rate reductions mandated in 2014.”

Net income increased by $65.2 million over the same quarter a year ago, primarily due to the strong underwriting performance and partially offset by a decrease in investment income. Annual net income increased by $88.6 million, driven by strong underwriting performance and increased investment income.

Information technology infrastructure investments, including costs associated with the replacement of Economical’s policy administration system, impacted the third quarter 2015 expense ratio by 2.1 percentage points and 1.8 percentage points year-to-date, compared to 0.6 percentage points and 0.3 percentage points for the comparable prior year periods, the statement said.

Founded in 1871, Economical Insurance has approximately $2 billion in annualized premium volume and $5.3 billion in assets as at Sept. 30, 2015. The Canadian-owned and operated company services the insurance needs of more than one million customers across the country and conducts business under the following brands: Economical Insurance, Economical, Western General, Economical Select, Perth Insurance, Family Insurance Solutions, Federation Insurance and Economical Financial.