•Generated net income of
Economical reported a combined ratio of 95.1%, a 3.6 percentage points improvement from the same quarter a year ago, due primarily to reduced levels of weather-related catastrophe claims combined with strong underlying performance from its insurance operations. The company's consolidated net income was
Year-to-date net income for the first half of 2014 was
"Our second quarter results reflect the strong performance of our insurance operations and represent a significant improvement from the severely weather-impacted first quarter of 2014," said
Economical Insurance Consolidated Highlights*
($ in millions, except as otherwise noted)
Three months ended
Six months ended
Gross written premiums
Underwriting income (loss)
Investment income (loss)
Total mutual policyholders' equity
Minimum Capital Test
*Note: Claims ratio, combined ratio and underwriting income exclude the impact of discounting and are non-GAAP measures which are defined below.
Gross written premiums for the second quarter grew by
On a year-to-date basis, gross written premiums grew by
Underwriting activity for the second quarter produced
Economical's personal auto business produced a second quarter combined ratio of 92.4%, a 2.0 percentage point deterioration from the second quarter of 2013. On a year-to-date basis, personal auto generated a combined ratio of 95.0% for 2014, a 4.4 percentage point deterioration from the prior year period due primarily to higher volumes of claims in the first quarter arising from challenging winter driving conditions.
Personal property produced a combined ratio of 98.6% in the second quarter of 2014, a 2.4 percentage point deterioration over the second quarter a year ago. Although there were no weather-related catastrophe losses in the second quarter, compared to the prior year period where the
Overall, the personal lines business produced a combined ratio of 94.2%, a 2.0 percentage point deterioration from the second quarter of 2013. On a year-to-date basis, personal lines produced a combined ratio of 96.1%, a 4.6 percentage point deterioration from the prior year period.
Commercial auto produced a second quarter combined ratio of 74.4% compared to 76.2% in the same quarter of 2013. This is a significant improvement over the first quarter 2014 results which were impacted by severe winter weather and challenging driving conditions. On a year-to-date basis, commercial auto produced a combined ratio of 90.4%, a 7.8 percentage point deterioration over 2013 as a result of the challenging first quarter weather conditions.
The commercial property and liability business recorded a second quarter combined ratio of 108.2%, 18.6 percentage points better than the same quarter in 2013. 2013 was heavily affected by weather-related catastrophe losses which increased the commercial property combined ratio by 22.1 percentage points. On a year-to-date basis, commercial property and liability produced a combined ratio of 115.5%, a 5.6 percentage point improvement from the prior year period, reflective of reduced large loss activity and a reduction in catastrophe claims.
Overall, the commercial lines business posted a combined ratio of 96.4%, which represents a 12.9 percentage point improvement from the second quarter of 2013. On a year-to-date basis, the combined ratio of 106.8% represents a 1.2 percentage point improvement from the prior year period.
Economical continues to realize benefits from actions taken in prior years related to its business transformation program, which in the second quarter helped offset the program-related costs incurred. The total cost of the program, including restructuring expenses, was
Market yields fell during the second quarter of 2014, negatively impacting the discounted combined ratio by 0.6 percentage points, or
Investment income overall increased
On a year-to-date basis, overall investment income increased by
Investment quality remains very strong with more than 75% of total investments, at
The second quarter effective tax rate at 22.8% is lower than the statutory rate primarily due to the favourable treatment of Canadian dividends generated by the company's investment portfolio.
Economical's capital position remains strong. Total mutual policyholders' equity was
Forward looking statements
Certain of the statements in this press release regarding our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements, or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other similar or comparable words or phrases, are intended to identify forward-looking statements.
Forward-looking statements are based on estimates and assumptions made by management based on management's experience and perception of historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Many factors could cause Economical's actual results, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: Economical's ability to implement its strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with the insurance policies that it writes; unfavourable capital market developments or other factors which may affect Economical's investments and funding obligations under its pension plans; the cyclical nature of the P&C industry; management's ability to accurately predict future claims frequency or severity; government regulations; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; Economical's reliance on information technology and telecommunications systems; Economical's dependence on key employees; and general economic, financial and political conditions.
All of the forward-looking statements included in this press release are qualified by these cautionary statements. These factors are not intended to represent a complete list of the factors that could impact Economical, however, these factors should be considered carefully, and readers should not place undue reliance on forward-looking statements we make. We are under no obligation and have no intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Included in this press release are a number of measures which do not have any standardized meaning prescribed by generally accepted accounting principles ("GAAP"). These non-GAAP measures may not be comparable to any similar measures presented by other companies.
Claims and adjustment expenses (excluding the impact of discounting) during a defined period expressed as a percentage of net premiums earned for the same period.
Claims and adjustment expenses (excluding the impact of discounting), commissions, operating expenses and premium taxes during a defined period expressed as a percentage of net premiums earned for the same period.
Net premiums earned for a defined period less the sum of claims and adjustment expenses (excluding the impact of discounting), commissions, operating expenses and premium taxes during the same period.
To reflect the time value of money, claim liabilities are discounted using the market yield rate of the investments used to support those liabilities (matched investments). Provisions for adverse deviation are also included when determining the discounted value.
Minimum Capital Test
A regulatory formula, defined by
Matched bond portfolio
A subset of the company's bond portfolio that is backing claim liabilities is matched in quantum and duration to those claim liabilities. The aim of this matching is to reduce the accounting mismatch in net income that would otherwise be generated by the fluctuations in the fair value of the claim liabilities due to changes in interest rates.
Founded in 1871,