Economical Insurance reported a 12.8% increase in gross written premiums (GWP) in the second quarter of 2017 to $660.6 million, driven by strong personal lines growth, including contributions from Sonnet and Petline.
“While we generated significant growth in gross written premiums stemming from broker channel personal lines, Sonnet and Petline, the underwriting performance of our auto lines remains challenged,” Rowan Saunders, president and CEO of Waterloo, Ont.-based Economical, said in a statement on Friday announcing its latest financial results. “To address this, we have implemented a number of targeted rate increases, underwriting and broker management actions, and will continue to strengthen our executive leadership. Further actions are planned through the balance of the year, although they will take time to earn through our results.”
The insurer was also impacted by challenging weather conditions, including four separate catastrophe losses from wind and rain events. “The ongoing investments in Sonnet and the replacement of our personal lines policy administration system further contributed to the increase in the combined ratio,” Saunders added.
For the three months ending June 30, the combined ratio was 112.8% for the quarter, up 8.3 points from 104.5% in the same quarter last year, including an impact of 6.5 percentage points related to Sonnet and the replacement of the insurer’s personal lines policy administration system. The insurer also generated a net loss of $18.5 million for the quarter, the statement noted.
Economical reported that underwriting results were impacted by a continued deterioration in auto performance, primarily in Ontario and British Columbia, which also resulted in adverse prior year claims development in the quarter. The quarter was also affected by the wind and rain storms, which primarily affected the property lines of businesses and contributed 2.7 percentage points to the combined ratio. Year-to-date, underwriting activity was affected by the same factors as the quarter, producing a loss of $106.1 million and resulting in a combined ratio of 110%, compared to an underwriting loss of $27 million and a combined ratio of 102.8% in the same quarter a year ago, the statement said.
By line of business, the personal auto combined ratio for the most recent quarter was 117.8%. The adjusted personal auto combined ratio for the second quarter was 106.5%, an 18.4 point increase from 2016, primarily due to continued deterioration in Ontario bodily injury, and British Columbia excess auto liability claims, Economical explained in the statement.
The personal property combined ratio for Q2 2017 was 106.8%, with an adjusted combined ratio for personal property of 100.6%. The adjusted combined ratio for the quarter improved 10.1 points from Q2 2016, primarily due to lower levels of weather-related cat losses. Total catastrophe losses decreased, as the same quarter a year ago was heavily impacted by the Fort McMurray wildfire (19.3 percentage points impact), while the current quarter was impacted by 8 percentage points of cat losses stemming from the four separate wind and rain events.
Overall, on an adjusted basis, personal lines produced an underwriting loss of $15.8 million compared to an underwriting profit of $16.3 million in the same quarter a year ago. Year-to-date, on an adjusted basis, personal lines produced an underwriting loss of $8.9 million compared to an underwriting profit of $24.4 million in 2016.
The commercial auto combined ratio for the second quarter was impacted by a “significant increase” in claims severity in all regions. For the three-month period ending June 30, the commercial auto combined ratio was 115.5%, up 23.8 points from Q2 2016. “To address the deterioration in this line of business, certain targeted rate increases have been implemented in the second quarter,” Economical said in the statement. “Further targeted rate increases and underwriting actions are planned for the second half of 2017.”
The commercial property and liability combined ratio for the second quarter of 2017 improved 11.2 points to 105.9% from 117.1%. Cat losses decreased, the statement said, noting that Q2 2016 was impacted by the Fort McMurray wildfire (17.1 percentage points impact), while the current quarter was impacted by 4.1 percentage points of cat losses. There was also an increase in favourable prior year claims development in the second quarter of 2017, which was partially offset by an increase in large losses.
Overall, commercial lines produced an underwriting loss of $17.9 million compared to $12.8 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting loss of $28.8 million compared to $14.6 million in 2016. Under the new leadership of Saunders in the second quarter of 2017, Economical reported that it initiated a comprehensive review of the commercial line of business portfolio by region and product type.
“This ongoing review has identified some early findings, including a range of pricing, underwriting and broker management actions, some of which were swiftly implemented during the second quarter,” the statement said. “While we expect our actions implemented to date and further actions arising from our ongoing review will impact our policy volumes and gross written premiums, we believe these actions will improve operating performance going forward.”
For Q2 107, GWP grew by $75.2 million or 12.8% over the same quarter a year ago from a combination of organic and inorganic growth. Personal lines premiums grew by $69.3 million or 18.8%, primarily due to increased auto and property policy volumes in the broker channel, new business growth from the digital direct distribution channel, Sonnet, and the acquisition of Petline.
Commercial lines premiums grew by $5.9 million or 2.7%, driven primarily by increased fleet business.
Year-to-date, personal lines premiums grew by $122.6 million or 19.5% and commercial lines premiums grew by $14.5 million or 3.8% over the same period a year ago.
Net income decreased by $35.6 million over the same quarter a year ago due to lower investment income, and higher underwriting losses driven largely by continued challenges in auto performance and increased spend on strategic initiatives. Year-to-date, net income decreased $58.8 million over the same period a year ago due to these same factors, the statement said.
Founded in 1871, Economical Insurance has more than $2.2 billion in annualized premium volume and over $5.5 billion in assets as at June 30, 2017. With more than one million customers across the country, the Canadian-owned and operated insurer includes the following companies: Economical Mutual Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company, Family Insurance Solutions Inc., Sonnet Insurance Company and Petline Insurance Company.