Net income down for Economical after severe weather events

Economical Insurance has reported a consolidated net income of $15.8 million for the second quarter of 2013, down $23.5 million from the prior year quarter, after seeing losses from severe weather events in June.

The Waterloo, Ont.-based insurer’s results incorporate $27.4 million of weather-related catastrophe costs, net of reinsurance and tax, mainly from the storm and flooding events in Alberta.

“Despite this, Economical maintained a profitable combined ratio of 98.7% for the second quarter, a 4.9 percentage point deterioration from the same quarter a year ago,” it noted in its consolidated results.

“When considering that the weather-related catastrophe losses adversely impacted the combined ratio by 8.4 percentage points (nil in the prior year), the company generated an underlying improvement in underwriting performance in the period.”

Gross written premiums for the second quarter grew to $539.8 million, or 5.1%, over the same quarter a year ago, driven by higher average premiums and modest volume increases across most lines of business, according to the company.

For the first half of the year, the company reported a net income of $42.7 million, compared with $79.7 million for the first six months of 2012, with a combined ratio of 97.8% compared to 95.2% in 2012, or 93.6% versus 95.2% when excluding weather-related catastrophe losses.

“Our second quarter results demonstrate the resilience of our insurance operations,” Karen Gavan, Economical’s president and CEO noted in a statement.

“We were able to maintain an underwriting profit while delivering on our promise to be there when our policyholders in Alberta needed us most during the worst flooding in the province’s history,” she noted.

“Since June 30, we have responded to torrential rain and flooding in the Greater Toronto Area as well as storm activity in other parts of the country. Our policyholders can count on Economical to help them restore their lives and businesses in the aftermath of such catastrophic challenges,” Gavan said.

“We also continued to invest in transforming our business during the second quarter. On May 29, we announced the completion of the organizational restructuring of our Information Technology department and the progress we continue to make in identifying opportunities for efficiency and productivity gains,” she added.

The year-to-date total costs of the insurer’s business transformation program, including restructuring expenses, are $17 million, $7.4 million of which are included in underwriting results. The second quarter results alone include $12.1 million in costs related to the program in total, $4.1 million of which were included in underwriting results.