Lower investment gains, underwriting income eat into ING’s 2007 Q1 profits

ING Canada Inc. (TSX: IIC) reported a 2007 Q1 net income of Cdn$126.2 million, down from Cdn$185.9 million recorded during the same quarter last year.
Lower gains on invested assets and, to a lesser extent, underwriting results reduced our profitability, ING Canada president and CEO Claude Dussault said in a press release. Our realized gains on invested assets decreased by more than [Cdn]$80 million due to less favourable equity market conditions and lower turnover in our fixed income portfolio.
The reduced contribution of our underwriting activities to our net earnings reflects the overall rate reductions, lower favourable prior year claims development and an increase in severity in commercial property.
The company reported a 2007 Q1 underwriting income of Cdn$40.3 million, down 49.6% from its underwriting income of Cdn$79.9 million in 2006 Q1.
ING Canadas combined operating ratio in 2007 Q1 was 95.8% (91.5% in 2006 Q1) and its 2007 Q1 return on equity (ROE) was 19.4% (30.1% in 2006 Q1).
The company said its net operating income for 2007 Q1 remained stable. Direct premiums written increased to Cdn$854 million, a 4.2% improvement after adjusting for industry pools, ING noted.
INGs management said it expected several key factors to affect the property and casualty (P&C) insurance industry over the coming twelve months.
Top-line growth for the property and casualty insurance industry will continue to remain below historical levels while underwriting results should continue to trend back to historical averages, the company said.
Automobile claims frequency remains low and we believe frequency will either increase or continued low frequency will lead to further premium reductions. Sustainability of the cost containment measures, which may atrophy after a period of time, as well as potential rate reductions, will continue to be key performance drivers.
Commercial insurance markets remain competitive, and although prices are continuing to soften, returns are expected to be above historical levels.