The Co-operators reports 5.5-point improvement in Q1 combined ratio, severe weather causes 9.6-point loss ratio increase in Atlantic Canada

Co-operators General Insurance Company reported Thursday its combined ratio improved 5.5 points to 98.2% in the three months ending March 31, from 103.7% in the first quarter of 2014, with a 12.2-point improvement in its loss ratio in Ontario and a 10.8-point improvement, nation-wide, in farm insurance, while Q1 net earned premiums increased $11.9 million in auto.

Guelph, Ont.-based Co-operators reported an underwriting gain of $10 million in Q1 2015, compared to an underwriting loss of $19.3 million in Q1 2014.

“Less severe winter weather in Ontario and the West resulted in an 8.8 percentage point improvement in the home loss ratio,” The Co-operators stated in its management discussion and analysis for the three months ending March 31. “The commercial loss ratio deteriorated by 2.6 percentage points, driven by unfavourable claims development and a large fire loss in the Western region.”

Those figures include Co-operators General Insurance Company as well as The Sovereign General Insurance Company, COSECO Insurance Company, L’Équitable, Compagnie d’assurances Générale and Co-operators Insurance Agencies Ltd. Co-operators General is owned by Co-operators Financial Services Ltd., which in turned is owned by The Co-operators Group Ltd. The Co-operators has 2,596 licensed insurance representatives throughout Canada.

Co-operators reported a 4.7% increase in net earned premiums, from $525.6 million in Q1 2014 to $550.5 million in the latest quarter.

Broken down by lines of business, Co-operators reported $264.9 million in Q1 net earned premiums in auto, $147.2 million in home, $105.8 million in commercial, $26 million in farm and $6.6 million in other.

Direct written premiums were $489.1 million in Q1 2015, up 3.4% from the same period in 2014.

“DWP growth continues to be tempered by the cancellation of two unprofitable lines of business, specifically CGIC’s withdrawal from the condominium market and Sovereign’s withdrawal from the standard personal lines market,” the company said in its MD&A.

Q1 net earn premiums increased, from 2014 to 2015, in all lines, ranging from 2% for farm to 6.1% for home.

The largest absolute increase was in auto, where net earned premiums increased by $11.9 million, or 4.7%.

“We experienced continued growth in vehicles in force and improved retention rates, which have offset the impacts of the Ontario auto rate reductions taken in 2013 and 2014,” Co-operators said in its MD&A. The company was alluding to the province’s Automobile Insurance Rate Stabilization Act, which in August, 2013 established an “industry-wide target reduction,” by 15% over two years, of the average private passenger auto premium. Since then, Ontario insurers have been required to “propose rates and a risk classification system that contribute adequately to the achievement of” that 15% target. On April 23, Finance Minister Charles Sousa suggested, in a press conference on the 2015-16 budget, that private passenger auto rates have come down by an average of 7% since August, 2013.

In its financial results for Q1 2015, Co-operators broke down its net earned premiums by region, reporting $220.3 million in the west, $255 million in Ontario, $20.7 million in Quebec and $54.5 million in Atlantic Canada. Premiums increased in all regions, ranging from 3.7% in Ontario to 13.1% in Quebec.

Co-operators also broke down loss ratios by region, reporting 56.7% in the west (down 1.5 points from Q1 2014), 65.4% in Ontario (down 12.2 points from Q1 2014), 86.7% in Quebec (up 17.8 points from Q1 2014) and 86.6% in Atlantic Canada (up 9.6 points from Q1 2014).

The company attributed the increase in Quebec to “an increase in the frequency and severity of accident year claims coupled with two large commercial property losses.”

Due to the small size of its market in Quebec, “fluctuations in claims severity for a relatively few number of claims have a significant effect on the loss ratio,” The Co-operators reported. “The Atlantic loss ratio deteriorated by 9.6 percentage points mainly due to an increase in accident year claims resulting from severe winter weather.”

Company-wide, Co-operators reported net claims and adjustment expenses of $376.3 million in the most recent quarter, down from $379.8 million in Q1 2014.

The loss ratio excluding market yield adjustment was 65.1% in Q1 2015, down 4.6 points from 69.7% in Q1 2014. The loss ratio including MYA was 68.4% in Q1 2015, down 3.9 points from 72.3% in Q1 2014.

“Fewer major events combined with more favourable claims development, partially offset by an increase in the severity of current accident year claims, drove the decrease in undiscounted net claims and adjustment expenses of $7.7 million or 2.1%,” the company stated in its MD&A.

Excluding MYA, Co-operators reported its loss ratio, in Q1 2015, was 75.7% in auto, home 50.7% in home, 62% in commercial, 54.7% in farm and 50.5% in other.

While the Q1 loss ratio in commercial deteriorated by 2.6 points from 2014, all other loss ratios decreased.

“The auto loss ratio has improved 5.4 percentage points as compared to the first quarter of 2014, primarily resulting from a decrease in claims frequency and more favourable claims development in Ontario,” the company said.

In its annual information form released March 30, Co-operators noted that 76% of direct written premiums are from Co-operators General, while about14% are from Sovereign and about 10% are from COSECO.

Sovereign primarily writes commercial insurance, distributed through independent brokers while COSECO provides home and auto insurance to employer association and affinity groups through HB Group, a managing general agent owned by The Co-operators.