Revenue, loss ratio up at Intact Financial

Intact Financial Corp. released Wednesday its financial results for the three months ending March 31, reporting a 1.9-point increase in its loss ratio and a 7% increase in net premiums earned compared to the first quarter of 2012.

According to its management discussion and analysis posted to SEDAR, Toronto-based Intact’s current year loss ratio for the first quarter of 2012 was 68.9%, up from 67% in the first quarter of 2012.

“Underwriting income of $83 million in Q1-2013 was down $40 million from Q1-2012’s exceptional performance,” the company stated. “The drop was primarily due to the impact on claims frequency from more seasonal weather conditions across all lines of business.”

The firm noted losses from catastrophes for the quarter were $13 million, which consisted of one severe storm that affected Quebec.

“Although weather conditions during the quarter were comparable to historical levels, Q1-2013 experienced higher levels of snowfall and colder temperatures than the unusually mild first quarter of 2012,” the company said in its MD&A. “This combination led to an increase in claims frequency in all lines of business, particularly in personal lines and commercial auto.”

Intact offers home, auto and business insurance through Intact Insurance, belairdirect, Grey Power, BrokerLink and Jevco.

Total revenue was $1.86 billion for the first quarter of 2013, compared to about $1.74 billion in the same period in 2012. Net premiums earned were $1.69 billion in the first quarter of 2013, compared to $1.58 billion in the first quarter of 2012.

The Q1 2012 results had been restated due to the adoption of new accounting standards, including a new method to compute the asset return component of the pension expense, the company noted in its SEDAR filing.

Net income attributable to shareholders edged up slightly year-to-year, from $173 million in the first three months of 2012 to $174 million in the first quarter of this year.

The combined ratio was 95.1% in the first quarter of this year, up from 92.3% in Q1 2012, “largely due to the more seasonal weather conditions,” the firm noted.

“Net investment income of $96 million in the first quarter was down 4% from a year ago,” the company stated. “Despite the additional investments obtained as part of the Jevco acquisition, declining yields continue to offset the underlying growth in our portfolio of investments; the market-based yield of 3.4% was down from 3.7% in Q1-2012.”

Intact also provided a 12-month outlook in its MD&A, noting the firm is seeing benefits from the reforms in Ontario auto that took effect in September, 2010. The reforms included a reduction in medical, rehabilitation and attendant care benefits in the standard auto policy (SAP) for non-catastrophic injuries, and a cap of $3,500 on payments for injuries under the minor injury guideline.

“The expectation when the 2010 reforms came into effect was that approximately 55% of accident benefits claims would fall under the Minor Injury Guidelines (MIG),” Intact stated this week in its MD&A. “After 30 months, we continue to experience a level above 55%.”

Intact noted it does not foresee an improvement in the loss ratio for personal auto.

“Potential for increased government intervention in Ontario auto could negatively impact premium growth,” the company stated, alluding to the recent provincial budget in which the minority Liberals said they would aim to reduce the average premium by 15%. “We expect premium reductions to be commensurate with cost reductions and, as such, we do not foresee material margin deterioration. “

It also noted there is a backlog of about 26,000 cases, industry-wide, awaiting mediation by the Financial Services Commission of Ontario (FSCO).

“However, improvement was seen during the first few months of 2013, as the industry backlog declined 16%, while our own backlog declined by approximately one-third,” Intact stated, adding that in the fourth quarter of last year, an additional 2,000 mediations and 500 arbitrations were assigned each month.

“All new applications received for mediation are now immediately assigned and heard within 60 days,” Intact said. “The size of the industry backlog and the delay for cases to be heard maintain a fair level of uncertainty with respect to the interpretation of the new regulations implemented through the reforms. “

Intact stated in a May 8 press release that its personal property combined ratio increased 10 percentage points year-to-year, to 93.5%.

“Commercial auto combined ratio increased 12.1 percentage points to 97.3% from the very strong performance of 85.2% in the first quarter of 2012,” Intact stated. “The increase was primarily due to a higher number of claims compared to last year’s unusually mild weather conditions and unfavourable prior year claims development.”