August 10, 2001 by Canadian Underwriter
Quebec-based Optimum General (TSE: OGI.A) reports weak second-quarter results, despite the company’s moves to respond to poor returns in the past. Gross written premiums and net earned premiums fell, while the company’s combined ratio continues to rise.
At the beginning of the year, Optimum chose to cede a higher percentage of its premiums to reinsurance in order to reduce the company’s risk exposure, notes president and CEO Jean-Claude Page. "Our reinsurance policy has been adopted to solidify the company’s capital base," he says.
The company has also instituted an average rate increase of 10% on all product lines in Canada, and is focussing its Texas business on auto insurance.
Despite these measures, the company is seeing a rough start to 2001. Gross written premiums for the second quarter of the year fell to $51.5 million from $54.3 million for the same period last year, while net earned premiums also dropped, to $2.68 million, down from $32.9 million for second-quarter 2000. This is largely due to the new reinsurance structure, Optimum says.
The company’s claims ratio rose, to 73.7% from 59.5% the year prior, a trend the company blames on "the general inadequacy in the level of rates in Canada for both the company and the industry as a whole". The combined ratio also rose, up to 110.8% for the quarter, as compared with 101.6% for the same period last year.
The net result is an underwriting loss of $2.9 million for the quarter, a steep drop from the loss of $0.5 million experienced in second-quarter 2000. This brings the company’s loss for the first half of the year to $5.7 million, compared with just $2 million for the first half of 2000. Net losses for the first half of the year saw earnings per share drop $0.05, versus first-half 2000 when net income saw shares rise $0.11.
On a bright note, the company did decrease its expense ratio to 37.1% for the quarter, as opposed to 42.1% last year. However, Optimum’s poor financial showing recently led rating agency A.M. Best to downgrade its rating from B+ to B for all five subsidiaries of the company in June.