Canadian Underwriter

How theft and Alberta’s rate pause affected Definity’s auto portfolio

May 16, 2023   by David Gambrill

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Auto theft, inflation, and increased claims frequency due to traffic returning to pre-pandemic levels all contributed to pushing Definity’s combined ratio in personal auto up to 100.9% in 2023 Q1, company executives reported in the company’s earnings call last week.

And while Ontario’s regulator has allowed the insurer to make up for the shortfall by approving substantial auto rate increases, an extended rate pause in Alberta’s auto insurance market may have P&C auto insurers looking to deploy their capital elsewhere, the executives observed.

Overall, Definity reported a profitable quarter, with a combined ratio of 95.3%. Gross written premium growth was 11.4%. Company executives credited the positive quarter in part to its long-term strategy of diversifying its book of business in other areas, such as commercial lines, and reducing its exposure to personal lines auto.

Auto is becoming challenging for the industry as a whole, Definity’s executives noted. For Definity, the combined ratio in its auto business is up 4.7 percentage points over the same period last year.

“Seasonal declines in auto underwriting income were…impacted by persistent inflationary pressures and a heightened incidence of theft,” Definity president and CEO Rowan Saunders explained during the conference call.

Asked to elaborate on the impact of auto theft on the company’s bottom line, Philip Mather, Definity’s executive vice president and CFO, noted theft accounted for about a third of the company’s combined ratio increase in auto from a year ago.

“Although [auto theft] is not a new occurrence, the increased frequency of it has been quite severe. And we applaud the Ontario government’s recent announcement on its commitment to invest in new measures to combat auto vehicle theft related to organized crime,” Mather said.

“We continue to expect this line of business to operate in the upper 90s for the calendar year. We’ve taken meaningful rate actions across much of our auto book, which we expect will result in overall written rates reaching approximately 12% by year-end, close to double the current levels.”

In Ontario, Definity’s largest auto portfolio, the regulator has approved rate increases of close to 10% in Vyne, the company’s broker business, and 7% in Sonnet, the company’s direct writer, Saunders said.

However, the company’s auto book is “not rate adequate” in Alberta, and the province has called for a “pause” in auto rate increases. That pause is expected to last until the provincial election is held on May 29.

Saunders said Sonnet’s auto book of business in Alberta, at about $80 million, represents only 2% of Definity’s total portfolio, so the rate pause doesn’t have a significant impact on the company’s overall bottom line. But inflation is no less a factor driving increased claims costs in Alberta as it is in Ontario, he observed. And if the pause becomes a long-term, post-election solution, “we’re very committed to not deploying capital into a line of business where there is a rate freeze and we’re not rate adequate.”

Once the Alberta election is decided, Definity hopes to be able to resume normal operations in the auto line, said Paul MacDonald, executive vice president of personal insurance and digital channels at Definity. “It is a challenging context, obviously, for the industry,” he added. “And ultimately, we believe it’s going to be difficult for the consumer, since the insurance industry has to react to these conditions.

“If there’s no rate flowing through that [Alberta auto] portfolio, and you’re seeing a very significant inflationary increases, the net result is [that] profitability is going to suffer. And likewise, you would expect to see capital being redeployed out of that province into other provinces.”


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