Definity Financial Corporation, whose brands include insurers Economical and Sonnet, reported net income of $100.9 million (M$) for the first quarter of 2023.
This represents an improvement of $133.5 million compared with a loss of $32.6 million in Q1 2022.
Data for the first quarter of last year have been revised, as for all insurers, to take account of changes to IFRS accounting standards. Comparison with the previous year must be done with caution, the company notes.
In a press release issued on May 11, Definity President and CEO Rowan Saunders highlighted the recent transaction between the insurer’s subsidiary McDougall and McFarlan Rowlands.
This transaction strengthens the insurer's distribution capabilities in Ontario, its main market, the company notes. In its presentation to financial analysts, Definity mentions that this transaction requires it to deploy approximately $190 million in capital.
Operating net income was $63.4 million in first quarter 2023, compared with $63.3 million in Q1 2022.
Rowan Saunders is particularly pleased with the 11.4 percent growth of gross written premiums over the 12-month period.
Gross written premiums totalled $846.9 million in the first quarter of 2023, versus $760.1 million in Q1 2022, for an increase of $86.6 million.
The company reported an 8 per cent increase in gross premiums written in personal lines. Comparing the Q1 2023 and 2022 results, sales growth in home insurance (12.4 per cent) surpassed that in personal automobile insurance (5.3 per cent).
The rate freeze on auto insurance premiums imposed in Alberta dragged the growth in gross written premiums.
Subsidiary Sonnet’s growth was particularly affected by this freeze: much of its revenues are derived from the personal auto segment, Saunders told analysts. Definity's CEO confirms that the Sonnet division is still not breaking even, but is steadily improving.
Paul MacDonald, Executive Vice-President of Personal Lines and Digital Channels, explains that the rates charged for high-theft vehicles will be adjusted according to the claims frequency in various provinces. Definity is working with its brokers and customers to install anti-theft tracking devices on their vehicles.
Rowan Saunders points out that the means of combatting insurance fraud must also be strengthened among insurers and regulators alike.
MacDonald adds that if the freeze on premiums is maintained, and claims cost inflation follows the same trend as in Ontario, investors will probably decide to use their capital in other jurisdictions.
Gross written premiums for automobile insurance are forecast to rise by 12 per cent on an annual basis in Canada, double their current levels.
Definity also reported a 20 per cent increase in commercial lines premiums, which were $263.8 million in the first quarter of 2023. Commercial insurance accounted for 31 per cent of gross written premiums in the first quarter of 2023, up from 28.9 per cent in 2022.
The company's combined ratio for the first quarter of 2023 was 95.3 per cent, 2.9 points worse than the ratio of 92.4 per cent posted for the same period in 2022.
Saunders explains that this combined ratio is in line with the company's initial target, and reflects strong performance in commercial and personal lines, despite the particular context in auto insurance.
Claims grew in the first quarter, and inflation pushed up claims costs. This trend is reflected in net claims and adjustment expenses, which totalled $525.1 million in the first quarter of 2023. This represents an increase of 16 per cent from the same period in 2022.
Obviously, the return to normal driving habits is stoking this increase. Note that the health measures linked to the pandemic were still in place at the start of 2022.
The high number of auto thefts was also raised. During the conference call with analysts, Definity's Executive Vice President and CFO Philip Mather applauded the Ontario government’s recent commitment. In May it announced a $51 million budget to combat theft perpetrated by organized crime networks.
The combined ratio in personal auto insurance was 100.9 per cent in the first quarter of 2023, 4.7 points higher than in the same period in 2022. MacDonald notes that theft accounts for 7 per cent of the insurer's auto losses.
The combined ratio for personal lines was 97 per cent in the first quarter of 2023, up 2.2 points from 94.8 per cent a year earlier.
In commercial lines, the combined ratio in this segment edged upward 5 points to 90.9 per cent at March 31, 2023, compared with 85.9 per cent in Q1 2022. Definity describes CAT losses and claims frequency during this period as “unusual.” Claims experience in early 2023 was affected by two large property losses in commercial insurance.
In its management discussion and analysis, Definity states that 89 per cent of its gross premiums were written through the brokerage network. Ontario generates 58 per cent of this volume, versus 8 per cent for Quebec.