Intact reports net income up 109% for Q2, says commercial P&C needs ‘corrective actions’

Intact Financial Corp. released Wednesday its financial results for the three months ending June 30, reporting a three-point improvement in its combined ratio in personal lines and 109% improvement in net income, while its commercial property and casualty business had a combined ratio of 100.5%, “warranting corrective actions.”

Toronto-based Intact said its net income attributable to shareholders more than doubled year-to-year, from $103 million in Q2 2013 to $215 million in the same period of this year. In the most recent quarter, the insurer recorded direct premiums written of $2.173 billion, down from $2.182 billion in Q2 2013. For the first six months of the year, direct premiums written were $3.66 billion in 2014, compared to $3.698 billion during the first half of last year.

The firm provides insurance through Intact Insurance, belairdirect, Grey Power, BrokerLink and Jevco.

Net claims were $1.11 billion in Q2 2014, down 2% from $1.133 billion in Q2 2013. The combined ratio for Q2 2014 was 92.9%, down 4.6 points from 97.5% in Q2 2013.

“The improvement was the result of a 6.5 point drop in catastrophe losses, as Q2 2013 included the Southern Alberta storms and flooding,” Intact stated July 30 in its management discussion and analysis for the most recent quarter.

“Our operating and financial results improved significantly in the past few months,” chief executive officer Charles Brindamour stated in a press release. “Our personal insurance business is performing well, reflecting the successful implementation of our improvement initiatives and the solid contribution of our auto insurance activities.”

In personal lines, Intact reported direct written premiums of $1.492 billion in the most recent quarter, down 2% year-over-year from $1.516 billion in Q2 2013.

Underwriting income in personal lines was up 72%, from $57 million in Q2 2013 to $98 million in Q2 2014. The combined ratio in personal lines improved by three points, from 95.2% in Q2 2013 to 92.2% in Q2 2014.

The combined ratio for the first six months, in personal property, was 92.6% in 2014, down from 104.4% in 2013, Intact stated, noting it started a “Home Insurance Improvement Plan” 18 months ago.

“The vast majority of initiatives under our Home Insurance Improvement Plan have now been implemented and continue to be applied on renewals,” Intact stated in its management discussion and analysis for investors.

“We continue to renew at the higher rates and to transfer remaining two-year policies in personal property to one-year policies. Higher deductibles, sub-limits on sewer back-up coverage, and more transparent product pricing displaying premiums by type of peril have now been rolled out in all provinces and are being applied upon renewal. In Alberta, depreciated value on roofs is also being applied upon renewal for claims caused by wind and hail.”

In personal property, the Q2 combined ratio improved by 19.8 points, from 113.3% in 2013 to 93.5% in 2014. The claims ratio in personal property was down 17.8 points, from 76.6% in Q2 2013 to 58.8% in Q2 2014.

The improvement in the personal property combined ratio was “primarily driven by a $60 million reduction in catastrophe losses,” Intact noted. “The beneficial impact of our rate and product actions were offset by an increase in claims severity, including a $7 million increase in non-catastrophe weather losses stemming from wind and rain storms in June, resulting in a 1.6 point increase in the underlying current year loss ratio.”

In personal auto, direct written premiums dropped slightly, from $1.037 billion in Q2 2013 to $1.031 billion in the most recent quarter.

Intact noted that “continued growth” in its direct-to-consumer business and rate increases in Alberta “were more than offset by the impact of government-mandated rate reductions in Ontario.”

Ontario’s Automobile Insurance Rate Stabilization Act, which took effect Aug. 16, 2013, mandates “an industry-wide target reduction,” by 15%, of the “average of the authorized rates that may be charged by insurers” for private passenger auto, with a two-year target.

“This process to date has resulted in an average 5.4% industry rate reduction approved as of Q2-2014,” Intact noted July 30, 2014 in its management discussion and analysis, adding Intact “has been reducing rates by 5.3% on average, targeting discounts to safe drivers.”

Intact also noted it launched usage-based insurance in Ontario earlier this year.

“Thanks to government measures announced last year, in addition to our own cost reduction initiatives, we believe we can protect our margins in the Ontario book of business,” the company added. “We believe the newly elected Liberal majority government fully understands that further rate reductions need to be accompanied by further cost reductions.”

In commercial lines, Intact reported direct premiums written were $681 million in Q2 2014, up 2% from $666 million in Q2 2013. The combined ratio improved by 8.2 points, from 102.9% in Q2 2013 to 94.7% in the most recent quarter.

In commercial P&C — which reported direct written premiums of $489 million in Q2 2014 — the claims ratio improved seven points year-to-year, from 67.1% in Q2 2013 to 60.1% in Q2 2014.

The combined ratio dropped 7.7 points, from 108.2% in Q2 2013 to 100.5% in Q2 2014, “as losses from catastrophes declined $37 million while we experienced a $4 million increase in favourable prior year claims development,” Intact noted.

“The underlying current year loss ratio deteriorated 5.5 points year-over-year, driven by an increase in claims severity. These challenging results warrant corrective actions to return the business to our low 90s run rate combined ratio objective.”

Commercial auto results improved, with the combined ratio down 10.1 points, from 89.6% in Q2 2013 to 79.5% in Q2 2014.

“While our commercial auto insurance results were excellent, the performance of our commercial property and casualty insurance portfolio continues to be disappointing, warranting corrective actions,” Brindamour stated.