Net earned premiums up 5.1%, net income down 81% at The Co-operators

The Co-operators General Insurance Company released Thursday its financial results for the three months ending March 31, reporting an underwriting loss of $33 million, a 19.6% increase in net earned premiums from Quebec, a 14.7% increase in commercial premiums and an 81% year-over-year drop in net income.

The Guelph, Ont.-based carrier also warned Thursday that mandated reductions in private passenger auto in Ontario “cannot be sustained or actuarially justified,” adding that its company-wide auto claims ratio increased 10.6 points year over year.

“Winter weather related claims across Canada and more unfavourable claims development, mainly in Ontario and Atlantic contributed to the loss ratio deterioration of 4.8 percentage points in the home lines of business,” The Co-operators stated in its management discussion and analysis posted to the System for Electronic Document Analysis and Retrieval (SEDAR) website.

“The commercial line of business loss ratio increased 6.1 percentage points as a result of winter weather related claims and a commercial property fire loss, which offset lower accident year claims in the Atlantic region compared to the first quarter of 2013.”

The company noted its combined ratio for the quarter, excluding the market yield adjustment, was 103.7%, compared to 95.4% in Q1 2013.

The Co-operators General Insurance — which is owned by Guelph, Ont.-based The Co-operators Group Ltd. — includes subsidiaries Sovereign General Insurance Company, COSECO Insurance Company, L’Équitable, Compagnie d’assurances Générale and 8383146 Canada Inc.

In its MD&A, The Co-operators recorded net earned premiums of $525.596 million in the latest quarter, up 5.1% from $500.06 million in Q1 2013. Claims and adjustment expenses were $382.9 million in Q1 2014, up 23.9% from $308.9 million in Q1 2013. Net income was $10.589 million in the most recent quarter, down 81% from $58.108 million in Q1 2013.

In its securities filing, The Co-operators attributed its $33-million underwriting loss both to increased weather-related claims and to a more unfavourable market yield adjustment.

Investment income dropped 4% year over year, from $29.7 million in the first three months of 2013 to $28.5 million in Q1 2014.

“The change is attributable to a strategic shift in asset mix decreasing the weighting of fixed income securities and increasing investments in equities,” the company stated in its MD&A.

Net claims and adjustment expenses were $382.9 million in the most recent quarter, up 23.3% from $308.1 million in Q1 2013.

The loss ratio, excluding market yield adjustment, was 69.7% in Q1 2014, up 8.7 points from 61% in Q1 2013. Broken down by product lines, the first-quarter loss ratios were: 65.5% in farm, up 2.5 points from 2013; 59.5 points in home, up 4.8 points from 2013; and 81.1 points in auto, up 10.6 points from 2013.

The Co-operators attributed the increase in the auto claims ratio to an increase in claims, more unfavourable claims development and rate decreases in 2013, especially in Ontario. In 2013, the Ontario government established an “industry-wide target reduction” by 15% over two years, of the “average of the authorized rates that may be charged by insurers” for private passenger auto.

“The Ontario auto insurance market continues to be a challenge as the minority government deals with political pressure to reduce costs and lower premiums for consumers,” The Co-operators stated in a press release Thursday announcing its Q1 2014 results.

“As a result, Co-operators General and COSECO face further mandated rate decreases effective July 1, 2014 of 5.3% and 3.6% respectively. This, despite the fact that Co-operators General had previously reduced premiums by 12% since 2012. This cannot be sustained or actuarially justified.”

The company broke down its Q1 net earned premiums by line. Auto was $253 million, up 3.6% from Q1 2013. Home was $138.8 million, up 2.7% from Q1 2013. Commercial was $102 million, up 14.7% from Q1 2013. Farm was $25.5 million, down 1.5% from Q1 2013.

Broken down by region, net earned premiums were up 6.7% year over year in the west and up 3.3% year over year in Ontario.

About 47% of the first-quarter net earned premiums ($245.8 million) were in Ontario while about 40% (about $245.8 million) were from the west.

In Quebec, The Co-operators reported net earned premiums of $18.3 million in Q1 2014, up 19.6% from $15.3 million in 2013.