February 22, 2019 by Greg Meckbach
“While Sonnet requires additional scale to achieve profitability, we now have sufficient insights and experience to improve performance, and we have confidence in the numerous actions we have already taken,” Economical Insurance CEO Rowan Saunders said Thursday in a statement.
Most insurance written by Economical is placed by brokers. But in 2016, Economical started writing personal lines (including auto, homeowner, condo, landlord and tenant) directly through Sonnet, deliberately choosing to go direct using a different brand name than it uses for its broker-placed insurance.
Sonnet had gross premiums written of $127 million in 2018, Economical said Thursday in a release announcing its financial results for last year. Company-wide, Economical reported direct premiums written of $2.46 billion in 2018.
There is a growing segment of the market that wants to buy insurance directly over the Internet, chairman emeritus Gerry Hooper told mutual policyholders in May 2018. “We only need to look at the success of the Amazons,” he said at Economical’s annual general meeting last May in Kitchener, alluding to how Amazon is displacing some industries. “The development of Sonnet is necessary for our future.”
Economical reported Thursday its combined ratio was 111.8% in 2018, a 1.9-point improvement from 113.7% in 2017. Its underwriting loss in 2018 was $265.6 million.
Economic did not specifically say Thursday how much it spent on Sonnet but did say that in personal lines, 6.3 points in its combined ratio were attributable to strategic investments that include Sonnet.
Personal lines gross written premiums were nearly $1.8 billion in 2018, up 15.7% from $1.5 billion in 2017, due in part to rate increases.
Economical reported last month it spent $8.1 million during the first nine months of 2018 on demutualization costs. The carrier spent $13.4 million and $7 million in 2017 and 2016 respectively on demutualization. Economical made history in 2018 when it submitted a demutualization proposal to the Office of the Superintendent of financial institutions.
Economical’s mutual policyholders are scheduled to vote March 20 on the demutualization proposal, which was released last month to the general public. Unless two-thirds of mutual policyholders vote in favour of the proposal, the demutualization process will stop.
Demutualization is subject to further policyholder votes as well as approval from the federal government.