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- Continued healthy premium growth of close to 5%
- Net operating income per share of $0.70 in Q4
- ROE of 13.9% with a 10% increase in book value per share in 2010
- Quarterly dividend to increase by 8.8% to 37 cents
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Net operating income for the year was strong at
CEO's Comments
"The solid and sustained growth of our premiums and our much improved underwriting results in 2010 led to one of our best performances in recent years. The initiatives we have launched over the last two years have allowed us to continue to outperform the industry both in terms of growth and profitability," said
"The improvement in home insurance and commercial property has been most remarkable. Auto insurance results have been robust considering the impact of the continued increase in medical claims costs in
"The early arrival of winter and higher losses than expected from weather events led to disappointing results in the last three months of the year, following four consecutive quarters of significant underwriting improvements. While weather patterns continue to be unpredictable and bring greater volatility to our results, our underlying performance throughout the quarter remained good.
"Our strong financial position and the quality of our operating earnings have allowed us to increase our dividend, for the sixth consecutive year, and to continue returning capital to our shareholders through share repurchases."
Dividend
The Board of Directors increased the company's quarterly dividend by 8.8%, or
Current Outlook
Industry premiums are likely to increase in 2011 at a pace similar to last year with percentage growth in the mid single digits in personal auto and upper single digits in personal property. These increases will be driven by rate inadequacies in auto insurance in
At an industry level, loss ratios are expected to improve in personal auto assuming that the reforms adopted in
The company is well-positioned to continue outperforming the P&C insurance industry in the current environment due to its significant scale, pricing and underwriting discipline, prudent investment and capital management practices, and strong financial position. Given these attributes, the company believes that it will outperform the industry's ROE by at least 500 basis points in the next twelve months.
Consolidated Highlights
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In millions of
dollars, except as
otherwise noted Q4-2010 Q4-2009 Change 2010 2009 Change
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Direct premiums
written (excluding
pools) 1,060.2 1,011.4 4.8% 4,498.1 4,274.9 5.2%
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Underwriting
income(1) 21.8 56.0 (61.1%) 193.8 54.0 258.9%
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Net operating
income(2) 79.0 98.1 (19.5%) 399.0 281.6 41.7%
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Net income 97.5 96.7 0.8% 419.8 126.7 231.3%
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Net operating
income per share
(dollars) 0.70 0.82 (14.6%) 3.47 2.35 47.7%
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Earnings per share
Basic and diluted
(dollars) 0.87 0.81 7.4% 3.65 1.06 244.3%
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Operating ROE 13.2% 9.2% 4.0 pts
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ROE 13.9% 4.5% 9.4 pts
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Combined ratio
(excluding MYA) 98.0% 94.6% 3.4 pts 95.4% 98.7% (3.3 pts)
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Weighted average
number of shares
outstanding
(millions) 112.6 119.9 (7.3) 115.1 119.9 (4.8)
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(1) Underwriting income is defined as underwriting income excluding
market yield adjustment (MYA).
(2) Net operating income is defined as the sum of underwriting income,
interest and dividend income and corporate and distribution income,
after tax.
(3) Operating ROE is defined as net operating income for the last twelve
months divided by the average shareholders' equity (excluding
accumulated other comprehensive income) for the same twelve-month
period. The average shareholders' equity is calculated by adding the
beginning balance and the ending balance and dividing by two.
Operating Highlights
- Net operating income for the quarter was $79.0 million , down $19.1
million from the same quarter in 2009, as a result of lower
underwriting and investment income. Net operating income for the year
was $399.0 million , up $117.4 million from the previous year due to a
much improved underwriting performance. The operating ROE for 2010
was 13.2%, up 4 percentage points.
- Direct premiums written increased 4.8% in the fourth quarter to
$1,060 million . Personal insurance premiums grew 5.1% mainly as a
result of higher rates. Home insurance premiums increased 7.3% while
the growth rate of auto premiums slowed down to 4.0% due to the
cautious approach the company has adopted as the Ontario reforms
unfold. Commercial auto insurance premiums were up 5.8% while
commercial P&C premiums increased by 3.6% despite the cancellation of
a number of commercial group accounts late in 2009. As expected,
these cancellations slowed the growth rate of commercial P&C premiums
in the quarter by 2.0 percentage points.
Total direct premiums written increased 5.2% during the year to reach
$4,498 million compared to $4,275 million in 2009, as pricing
conditions firmed up in all lines of business.
- Underwriting income for the quarter was $21.8 million , with a 98.0%
combined ratio, down significantly from the particularly strong
results from a year ago. The decline reflects the impact of early
winter conditions and higher losses than originally expected from
whether events that occurred earlier this year. However, the
underlying current year loss ratio improved during the quarter.
The underwriting performance in home insurance remained robust with a
combined ratio of 91.7%. Personal auto underwriting income was down
significantly with a loss of $16.5 million and a 103.0% combined
ratio as a result of the impact of increased level of catastrophic
losses and snow precipitation in December.
Commercial insurance underwriting income improved during the quarter
to reach $17.2 million up 4.9% from the last quarter of 2009, driven
by improved results in commercial P&C, which offset a lower
performance in commercial auto. The combined ratio for commercial
auto and P&C were respectively 93.9% and 93.8%.
Total underwriting income increased significantly in 2010 reaching
$193.8 million up from $54 million in 2009 with improved performance
in home and commercial P&C. Auto insurance remains profitable despite
the deterioration in Ontario results prior to the adoption of new
regulatory framework in the fall of 2010.
- Interest and dividend income, net of expenses at $72.9 million
declined 5.7% during the quarter compared to the same period of last
year as a result of declining yields. Total interest and dividend
income, net of expenses, for the year was up 0.6% to $294.4 as the
increase in the size of the portfolio offset the decline in interest
rates during the year. The market-based yield for the quarter and the
year were 4.1% and 4.2% respectively.
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Investment Gains
Gains on invested assets, excluding HFT bonds, improved significantly to
Capital Management
The company's book value per share has risen by 10% over the last twelve months to
During the year, the company acquired 7.7 million shares under the Normal course issuer bid launched in
Analysts Estimates
The average estimate of earnings per share and net operating income per share for the fourth quarter among the analysts who follow the company was
Conference Call
The conference call is also available by dialling (647) 427-7450 or 1 (888) 231-8191 (toll-free in
A replay of the call will be available later today at
About
Forward Looking Statements
This document may contain forward looking statements that involve risks and uncertainties. The company's actual results could differ materially from these forward looking statements as a result of various factors, including those discussed in the company's most recently filed Annual Information Form and annual Management's Discussion & Analysis. Please read the cautionary note at the end of the MD&A.
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