Net income down, gross written premiums up at Economical in Q1

Economical Insurance reported Wednesday consolidated net income of $26.9 million for the first quarter of the year, a decrease of $13.6 million from the same period last year, which it said is due mainly to “a reduction in realized gains.”

However, the Waterloo, Ont.-based property and casualty insurer noted that including other comprehensive income, it increased mutual policyholders’ equity by $48.1 million, a $7.3 million increase over the first quarter of 2012.

The insurer also reported gross written premiums of $400.4 million for the quarter, up from $381 million for the same period in 2012 and a strong combined ratio of 96.9%, 0.3 percentage points higher than the same quarter a year ago.

Its generated underwriting income for the quarter was $13.4 million, about the same as Q1 last year. The company attributes that growth to general volume increases across all lines of business, and an increase in average premiums for all lines except personal auto.

For personal auto, the company reported a combined ratio of 90.8% for the first quarter, a 1.6 percentage point improvement over Q1 in 2012. While it said that “Ontario personal auto currently performs satisfactorily, the company remains concerned about a number of factors that could have a negative impact on the future profitability of this business.”

For personal property, Economical reported a combined ratio of 90.6%, a 5.0 percentage point increase over a strong first quarter last year, a change the company says signals a return to more normal winter weather conditions.

The insurer’s commercial property and liability business recorded a “disappointing” combined ratio of 115.5%, 7.6 percentage points higher than the same quarter in 2012, while commercial auto produced a Q1 combined ratio of 89.3% compared to 106.5% in the same quarter of 2012.   

While the company’s investment income did increase overall from $26.3 million in Q1 2012 to $34.9 million for Q1 this year, “the persistently low interest rate environment continued to depress interest income while realized gains on the remainder of the investment portfolio were down by $14.1 million compared to a year ago,” its statement noted.

“This reduction in realized gains drove the decline in quarterly net income.  Overall investment quality remains very strong with over 76% of total investments held in high quality government and corporate bonds, with the balance primarily held in common and preferred shares,” it added.

“Our first quarter results show that the company continues to make real progress on its profitable growth strategy,” Economical president and CEO Karen Gavan commented in a statement on the results.

“At the same time we are investing significantly in transforming the business to ensure the sustainability of Economical’s competitiveness for the longer-term,” she added.

“We need a level playing field with our competitors to achieve our vision of Economical becoming the leading property and casualty insurance company in Canada,” Gavan noted, referring to the company’s demutualization process.

“Although we do not yet have the regulations we need to proceed with our demutualization, we have actively pursued discussions with the federal government as they work to develop those regulations, with a view to ensuring a framework for demutualization that works for Economical,” she added.

The total costs in Q1 from what the company calls its “business transformation program” were $4.9 million, $3.3 million of which was included in underwriting results. “Excluding the impact of this investment, the combined ratio for the first quarter of 2013 would be 96.1%, a 0.5 percentage point improvement over the same quarter a year ago,” the company’s statement noted.