Insurer defies COVID-19

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By Aurélia Morvan | May 26, 2020, 4:20 p.m.

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After finishing 2019 in a strong position, Economical Insurance started 2020 in the red.

The company reported a net loss of $3.2 million in the first quarter of 2020. However, this result is 15.8% or $600,000 higher than that of Q1 2019, when the company reported a net loss of $3.8 million.

Economical explains this result by the improvement in its technical results, which were muted by reduced investment income due to COVID-19. The insurer reported a $25.4 million downturn in investment income, equal to 38.5%. This income was $40.6 million in Q1 2020 versus $66 million in the same quarter of 2019.

An improvement in underwriting mitigated this downturn.

Positive underwriting results

The company reported an underwriting loss of $12.3 million in Q1 2020. In fact, this loss is an improvement from the loss of $43.4 million reported in Q1 2019. The upturn equals 71.7%, or $31.1 million.

The underwriting loss was $10.3 million for the business insurance sector alone, versus a loss of $6.6 million in Q1 2019. This decline reflects “a $10.5 million estimate for potential exposures pertaining to COVID-19,” Economical explains.

Economical also improved its combined ratio. It fell from 107.3% in Q1 2019 to 102.1% in the same quarter of 2020.

“The underwriting improvement was the result of a decrease in the core accident year claims ratio across our lines of business. This improvement was driven primarily by benign weather conditions in 2020 compared to particularly challenging weather in the first quarter of 2019,” the insurer says.

Premium breakdown

Economical reported net earned premiums of $590.5 million. They dipped by 0.6% compared with the $594.3 million reported in Q1 2019.

Gross written premiums were $576.2 million in Q1 2020, versus $510.1 million in the first quarter of 2019. This growth of 13%, or $66.1 million, is fuelled by rate increases across the company’s business, “in the firm market environment,” Economical says.

Gross written premiums in business insurance rose 10.2%, to reach $143.1 million. Specifically, they climbed 19.9% in auto insurance to reach $56.6 million, and 4.6% in property and liability insurance, to $86.5 million. Economical thus confirms a “return to growth in this line of business after several years of corrective underwriting actions.”

In the personal insurance sector, gross written premiums climbed 13.9% to reach $433.1 million. Specifically, they were up 11.4% in auto insurance, at $290 million, and 19.3% in property insurance, totalling $143.1 million. These increases were driven by the results of the brokerage network combined with those of Sonnet, Economical says.

Sonnet maintains momentum

Sonnet, the fully online insurance company that Economical launched in 2016, racked up $40.8 million in gross written premiums in Q1 2020. They grew by 20% since the same quarter of 2019 and doubled since the Q1 2018.

Sonnet’s positive results aside, the investments that Economical made in its online insurer and its Vyne platform continue to have a bloat its combined ratio. Sonnet and Vyne added 3.8% to Economical’s combined ratio in Q1 2020, compared with 3.5% for the same quarter in 2019.

Economical cautious about COVID-19

Economical Insurance is the only large insurer on the Canadian market to report an upturn in its net results in Q1 2020, a period stunted by the COVID-19 pandemic. Rowan Saunders, president and CEO of Economical Assurance, remains cautious.

“Without question, the environment has evolved since the onset of the COVID-19 pandemic, which introduces significant uncertainty in the months ahead. While the underwriting results in mid-March began to benefit from a reduction in auto claims frequency, this was outweighed by our prudent provisioning for potential COVID-19 exposures where specific endorsements were in place,” he says.

Desjardins, iA Financial Corporation, Great-West Lifeco, Manulife, Sun Life Financial, Intact and Munich Re reported lower earnings in the first quarter. Swiss Re, Empire Life and Co-operators sustained a net loss, compared with a net profit in Q1 2019. Net results for Northbridge and Aviva Canada are unknown, but they did issue a Q1 2020 report.