Waterloo-based The Economical Insurance Group saw its net income drop sharply in 2001, but managed to escape the year with a profit, and a growth in written premiums. Net income was $3.6 million last year, down from $19.6 million in 2000. Return on equity (ROE) stood at 0.6%, down from 3.0% the year prior. The company’s loss ratio improved slightly in 2001, to 80.8% from 80.1% in 2000, but the expense ratio grew to 31.1% as compared to 30.9% the year prior. The overall combined ratio sat at 111.2% for 2001, a marginal improvement over 111.7% in 2000. One bright spot was the company’s investment income, which although down slightly (to $124.4 million versus $141.9 million in 2000), saw realized gains of over $38.8 million. Assets have been moved to top quality bonds in order to avoid the volatility of the equity markets, the company notes. But Economical sees signs of a turnaround in its direct written premiums, which grew by 10.7%, to more than $116 million in 2001. The company is directing its attention to rate adequacy, as well as "prudently establishing" claims reserves. It is looking to the new rate structure for Ontario auto as one facet of restoring rate adequacy. "The year under review can be marked as perhaps the most severe period of uncertainty that the Canadian market has ever witnessed, whether we look at equity markets, interest yields, claims costs, reinsurance, rate adequacy or regulatory changes," says Economical president and CEO Noel Walpole. "In 2002, the industry will continue to focus on rate adequacy. The need to take corrective measures in rate has been compounded by the dramatic increase in reinsurance costs." The company will also be continuing to invest in technology and in new products, such as its "Express" product for small commercial risks. "This, coupled with the group’s disciplined approach, has given us the solid foundation we need to do well in 2002 and beyond," says Walpole.