Harsh weather pushes Intact’s combined ratio up, operating income down in first quarter

Intact Financial Corporation reports that harsh winter conditions resulted in 4.3 points of catastrophe losses and higher claims frequency, contributing to the combined ratio increasing in 2014 Q1 compared to 2013 Q1.

Weather’s impact was also reflected in the insurer’s net operating income for the quarter ended March 31, 2014, notes a statement Wednesday announcing the 2014 first quarter results for Intact, the largest provider of property and casualty insurance in Canada.

Net operating income was $129 million, down $46 million compared to the first quarter of 2013, as a result of a $32 million decline in underwriting income due to severe weather conditions and an increase of $28 million in taxes from last year’s unusually low level. The decrease in net operating income “reflects the impact of harsh winter weather conditions, which led to a combined ratio of 97.1%, up 2 percentage points from the same quarter last year,” the press release says.

“Our financial performance during the quarter was significantly impacted by severe weather conditions,” comments Charles Brindamour, CEO of Intact Financial Corporation.

“Our home insurance portfolio performed very well despite significant property damages incurred as a result of extreme cold temperatures and rapid thaw events. The performance of our auto insurance portfolio remained healthy despite the increased number of automobile accidents due to icy driving conditions. However, commercial insurance results were disappointing and we continue our efforts to improve the performance of this business,” Brindamour says in the statement.

Specifically, underwriting income for 2014 Q1 was $51 million compared to $83 million in the first quarter of 2013. “The active weather season across the country resulted in $75 million in catastrophe losses and a 2.5 percentage point increase in the underlying current year loss ratio, as extreme cold temperatures and a few occurrences of rapid thaw led to an increase in automobile accidents, fires, burst pipes, water damage and sewer back-ups,” Intact reports.

Looking at specific lines, personal property reported underwriting income of $32 million in the first quarter of 2014 compared to $24 million in the corresponding quarter for 2013; personal auto underwriting income decreased almost 50% to $25 million as a result of increased frequency of claims from icy driving conditions; commercial auto underwriting income increased to $15 million compared to $4 million; and commercial p&c insurance combined ratio was up 7.4 percentage points to 105.6%, resulting in an underwriting loss of $21 million.

Comparing 2014 Q1 to 2013 Q1, other results include the following:

• net income amounted to $160 million, down 8% from $174 million;
• adjusted earnings per share of $1.23, down 10% compared to $1.36; and
• direct premiums written remained largely unchanged at $1.5 billion ($1.503 billion in 2014 Q1 compared to $1.524 billion in 2013 Q1).

With regard to the last point, “the underlying growth in direct premiums written at 1% was tempered by the continued reduction in the company’s earthquake exposure in British Columbia and its actions to target rate increases for the least profitable segments of its commercial lines portfolio,” notes the Intact statement.

The company reports its financial position was strong at the end of 2014 Q1, with an estimated Minimum Capital Test of 213% and $670 million in excess capital.

Looking forward, the statement notes that the company believes it will outperform the industry’s return on equity (ROE) by at least 500 basis points over the next 12 months. As well, Intact expects industry premiums will grow at a low single-digit rate.

Looking at personal property, “the current hard market conditions should accelerate meaningfully as the magnitude of 2013 catastrophe losses negatively impacted industry results,” the press release notes.

As well, future reductions in Ontario auto premiums are expected to be commensurate with governmental cost reduction measures, and in commercial lines, continued low interest rates and the impact on commercial lines loss ratios from the recent elevated catastrophe losses could translate into firmer conditions over time, the statement adds.

“The level of catastrophe losses is likely to diminish in 2014 from the record levels of the past year. This should lead to improvements in the industry’s combined ratio in 2014. Overall, the industry’s ROE is expected to trend back toward its long-term average of 10% in 2014,” Intact reports.