COVID-19 and Alberta catastrophes hit Co-operators’ results
After having sustained its steepest net loss in the last 10 years in Q1 2020, amidst the COVID-19 crisis, Co-operators confirmed another downturn, yet remains in positive territory.
The insurance group reported net income of $47.9 million for the second quarter of 2020. This result is 39.4% or $31.2 million lower than the net income of $79.1 million for Q2 2019.
“The second quarter results reflect pre-tax losses of $115.8 million, net of reinsurance and inclusive of ceded reinstatement premiums, related to the two catastrophic weather events in Fort McMurray, Alberta and Calgary, Alberta,” Co-operators says.
Undiscounted net claims and adjustment expenses were $598.2 million in Q2 2020, versus $501.3 million in the same quarter of 2019. This increase of 19.3%, or $96 million, is “primarily the result of the catastrophic weather events experienced in the Western region,” the insurer explains.
In parallel, Co-operators reported an underwriting loss of $33.6 million in the second quarter of 2020. In Q2 2019, Co-operators reported underwriting income of $36.8 million. This change amounts to a plunge of 191.3% or $70.4 million.
“While two catastrophic weather events in Alberta negatively impacted our clients personally as well as our underwriting performance, these financial losses were offset to a degree by a rebound in global capital markets,” says Rob Wesseling, President and CEO of The Co-operators Group Limited, the cooperatives holding company for The Co-operators group of companies.
A boost from the markets
Co-operators recognized net investment income and gains of $135.1 million in Q2 2020 versus $77.2 million in the same quarter of 2019. This corresponds to an increase of 75.1% or $57.9 million.
The cooperative adds that “accommodative fiscal and monetary policies resulted in a steep rebound in the capital markets after their correction in March,” causing a “significant appreciation” of its invested asset portfolio.
Specifically, Co-operators explains that its higher net investment income and gains are “primarily driven by positive changes in the fair value of our preferred share and fixed income portfolios, including foreign exchange contracts, and was partially offset by a decline in realized gains on our common share portfolio and lower dividend distributions.”
Less travel, fewer premiums
The COVID-19 pandemic also dampened Co-operators’ direct written premiums. They were $1.02 billion in Q2 2020 versus $1.05 billion in the corresponding quarter of 2019.
The corresponding decline is 3.2% or $33.5 million, “mainly attributable to the Reduced Driving Refund of $35.5 million in the auto line of business and other client initiated coverage changes,” Co-operators says.
Net earned premiums climbed to $836.9 million in Q2 2020 from $804.6 million in the second quarter of 2019. An increase of 4%, or $32.3 million.
Combined ratio deteriorates
Co-operators reported a combined ratio of 104% in Q2 2020. An 8.6 point increase compared with the combined ratio of 95.4% reported for the second quarter of 2019.