TD Insurance expects third quarter loss from severe weather impact

TD Bank Group said Tuesday it expects a third quarter net loss for its insurance business of between $240 million and $290 million after tax, based on losses from severe weather events, especially in Alberta.

The company is expecting a loss of about $418 million after tax ($565 million before tax) from severe weather-related losses and “increased general insurance claims.”

“Excluding these charges, Q3 2013 insurance earnings are estimated to be in the range of $130 million to $180 million after tax,” it noted.

Claims costs from the rainstorm and flood damage in southern Alberta from June 20, as well as in the Greater Toronto Area of July 8 (including for evacuation, home and auto damage), will have a pre-tax impact of about $170 million after reinsurance for the company.

TD also noted that it has been facing “uncertainty related to automobile insurance reforms” in recent years. The company said it experienced an increase in third-party bodily injury claims in 2012 related to pre-2010 auto reforms, and insurance reserves were increased accordingly in the fourth quarter of the year.  

“Unfortunately, evidence from this year’s claims development has led TD to strengthen those reserves further and TD Insurance’s third quarter results will include an additional provision of approximately $395 million pre-tax ($292 million after tax) to increase claims reserves for its General Insurance business,” it said.

Increased litigation, especially in urban areas, has also contributed to the uncertainty around auto insurance, TD noted. Combined with fraud, that has “ caused TD Insurance to re-assess and increase the expected ultimate loss rates for prior claim years when determining claims reserves,” its statement said.

“The Ontario auto insurance market has presented a significant challenge to our business,” noted Ed Clark, TD Bank Group’s president and CEO.

“And, while any loss is disappointing, increasing our reserves in light of greater uncertainty is the prudent step for TD,” he said. “TD will continue to work with governments across the country to ensure appropriate, sustainable and affordable protection is available for Canadians.”

In the medium term, TD said it expects a modest decline in insurance earnings from the normalized 2012 level of $600 million.

“Despite the challenges, we remain committed to our insurance business and believe in its potential for acceptable returns and growing profitability over time,” Clark said. “We will continue to review and refine our business model for home and auto insurance to ensure we are able to offer high quality products and services to our customers.”