Desjardins reports P&C insurance premiums up 5.4%, while State Farm acquisition expenses hit combined ratio

Desjardins General Insurance Group Inc. announced Thursday its financial results for the three months ending June 30, reporting a 5.4% increase in direct written premiums and an 86% drop in underwriting income over the second quarter last year.

The Levis, Quebec-based property and casualty insurer reported a combined ratio, in the second quarter of 2014 of 98.7%. That was a 10.3-point deterioration from 88.4% in Q2 2013, which DGIG attributed to “higher property insurance losses and increased expenses related to the acquisition of State Farm’s Canadian operations.”

The agreement to acquire the Aurora, Ont.-based Canadian operations of State Farm, which is expected to close next January, was originally announced Jan. 14, 2014. In addition to State Farm Canada’s property and casualty insurance, Desjardins also agreed to acquire State Farm’s Canadian life insurance, mutual fund, loan and living benefits operations. At the time of the acquisition, Desjardins said it planned to continue using the State Farm brand.

DGIG stated Thursday its combined ratio for Q2 2014 “would have been 96.2%,” if the expenses related to the State Farm Canada acquisition were excluded. DGIG reported direct written premiums of $616.4 million in Q2 2014, up 5.4% from $584.6 million in Q2 2013. Underwriting income was $6.9 million in Q2 2014, down 86% from $50.4 million in Q2 2013.

In March, DGIG said that once the State Farm acquisition is complete, DGIG’s premium will “almost double” across Canada, and Desjardins’ P&C insurance group will “jump from the seventh to the second spot in the industry.”

The 5.4% year-over-year increase in second-quarter premiums “was achieved entirely through organic growth and despite auto insurance rate decreases in Ontario and the Maritimes,” DGIG said Aug. 28.

More than 50,000 “mostly new clients” registered for DGIG’s usage-based auto insurance programs since they were launched in May 2013, Sylvie Paquette, president and chief operating officer, said in the release.

Desjardins offers usage-based insurance under the Ajusto brand to auto clients and under the Intelauto brand to clients of its group insurance segment. The carrier offers discounts of up to 25% based on driving behaviour (including total distance, time of day, hard braking and sudden acceleration), which it monitors using a telematics device from iMetrik that plugs into a vehicle’s diagnostic port. Ajusto is available in Ontario and Quebec.

In addition to auto, DGIG provides property, pet, motorcycle and recreational vehicle coverage in Ontario, Alberta and Quebec. Other P&C offerings in Quebec include business auto and property insurance, liability, equipment breakdown and loss of business income.

DGIG is part of the P&C segment of Desjardins Group, which also owns High River, Alta.-based Western Financial Group Inc. Western Financial, whose operations include an insurance broker network in Western Canada, made 18 acquisitions from 2011 through to June 30, 2014, Optis Partners noted in a recent report.