-
Net operating income per share of
$0.87 , despite significant losses associated with natural catastrophes - Combined ratio of 97.0% driven by very strong underwriting results in auto insurance
- Operating ROE of 13.6% with an 11% increase in book value per share in the last 12 months
-
AXA Canada acquisition progressing well and on-track to close this fall
Net operating income for the first six months was
CEO's Comments
"The catastrophic losses we incurred during the spring months, the
largest since the 1998 Ice Storm, overshadow one of our best
performances in recent years. As our strategic initiatives continue to
prove quite sustainable, the strength of our results demonstrates our
ability to weather the impact of both natural catastrophes and severe
climatic events," said
"The performance of our auto insurance portfolio, which has been solid
over the last few months, continues to improve, most notably in
"Our financial position remains strong and we are well positioned to
take advantage of improving market conditions. Furthermore, the
upcoming acquisition of
Dividend
The Board of Directors declared a quarterly dividend of
Current Outlook
Industry premiums are likely to increase in the next 12 months 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. In home insurance, loss ratios should benefit from continued premium increases. Loss ratios are expected to remain stable in commercial lines but pricing conditions may improve at a moderate pace over time. The industry's return on equity was approximately 7% in 2010 and is unlikely to improve materially in the near term, as any increase in underwriting income will be largely offset by a decline in investment income, resulting from lower yields.
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 strongly believes that it will outperform the industry's ROE by at least 500 basis points in the next 12 months.
Consolidated Highlights
In millions of dollars, except as otherwise noted | Q2-2011 | Q2-2010 | Change |
YTD 2011 |
YTD 2010 |
Change |
Direct premiums written (excluding pools) | 1,354 | 1,318 | 3% | 2,297 | 2,232 | 3% |
Underwriting income1 | 33 | 66 | (50)% | 91 | 135 | (33)% |
Net operating income2 | 95 | 119 | (20)% | 197 | 232 | (15)% |
Net income | 123 | 141 | (13)% | 280 | 282 | (1)% |
Net operating income per share (dollars) | 0.87 | 1.04 | (16)% | 1.78 | 1.98 | (10)% |
Earnings per share Basic and diluted (dollars) |
1.12 | 1.22 | (8)% | 2.54 | 2.40 | 6% |
Operating ROE 3 | 13.6% | |||||
ROE4 | 17.3% | |||||
Combined ratio (excluding MYA) | 97.0% | 93.7% | 3.3 pts | 95.8% | 93.5% | 2.3 pts |
Book value per share (dollars) | 26.89 | 24.32 | 11% |
1 Underwriting income is defined as underwriting income excluding market
yield adjustment (MYA). The MYA is the impact on claims liabilities due
to movement in discount rates.
2 Net operating income is defined as the sum of underwriting income,
interest and dividend income and other income, after tax.
3Operating ROE is defined as net operating income for the last 12 months
divided by the average shareholders' equity (excluding accumulated
other comprehensive income) for the same 12-month period. The average
shareholders' equity is calculated by adding the beginning balance and
the ending balance and dividing by two. Q2-2010 comparative ratio has
been omitted from the table as the 2009 results were not restated to
IFRS. Under Canadian GAAP, the Operating ROE was 11.7% in Q2-2010.
4ROE is defined as net income for the last 12 months divided by the
average shareholders' equity 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. Q2-2010 comparative
ratio has been omitted from the table as the 2009 results were not
restated to IFRS. Under Canadian GAAP, the ROE was 11.5% in Q2-2010.
Operating Highlights
-
Net operating income for the quarter was down 20% to
$95 million from the same quarter in 2010, as a result of lower underwriting income resulting from an exceptionally high number of natural catastrophes during the quarter. The operating ROE for the last 12 months was 13.6%. Net operating income for the first six months of the year was$197 million , down from$232 million during the same period last year.
-
Direct premiums written increased 3% in the second quarter to
$1,354 million as growth in commercial lines continued to gain momentum. Personal insurance premiums grew by 2%, as a result of slower growth of the company's direct channel operations, notably inOntario , where the company adopted a prudent approach towards auto insurance. Commercial insurance premiums increased by 5% as a result of a higher number of risks insured, and moderate premium rate increases in commercial P&C.
For the first two quarters of the year, total direct premiums written increased 3% to$2,297 million compared to the same period in 2010.
-
Underwriting income in the quarter decreased from
$66 million to $33 million compared to the same period a year ago. TheSlave Lake wildfires accounted for pre-tax losses of$47 million net of reinsurance while the numerous rain and wind storms that prevailed during the spring months accounted for additional losses of$58 million , bringing the total to$105 million . A much improved performance in auto insurance and favourable prior year claims development partly offset the impact of the natural catastrophes. The underlying performance of our portfolio, which excludes catastrophes and prior year claims development, improved by 3.9 percentage points during the quarter. Overall, the combined ratio increased by 3.3 percentage points to 97.0%.
Personal auto underwriting income reached$79 million , up 244% from the same period last year as the combined ratio decreased 10 percentage points to 85.7% reflecting significant improvements inOntario .
Home insurance was the most impacted by the natural catastrophes and incurred a$74 million loss with a 129.5% combined ratio. The losses associated with theSlave Lake wildfires contributed 20.7 percentage points to the combined ratio. Excluding the impact of the catastrophes and prior year claims development, the loss ratio for home insurance improved by 1.1 percentage point year-over-year.
Commercial auto results continued to be excellent with a combined ratio of 75.4% while the combined ratio in commercial P&C insurance increased by 8.6 percentage points to 96.2% as a result of higher catastrophe losses. Overall, commercial insurance generated a$28 million underwriting profit.
Total underwriting income for the first six months of the year was$91 million , down from$135 million in the corresponding period of 2010.
-
Investment income remained almost unchanged at
$75 million . The growth of invested assets offset a 20 basis point reduction in the market-based yield. Total investment income for the first six months also remained unchanged at$149 million .
Investment Gains
Net gains on invested assets, excluding
fair-value-through-profit-or-loss bonds, were up
Capital Management
The company's book value per share at the end of the quarter rose 11%
over the last 12 months to
During the quarter, the company repurchased 127,000 common shares under
its normal course issuer bid launched in
The planning of the integration of the two companies started in earnest in the days following the announcement of the transaction with the establishment of numerous task forces that are reviewing the activities, processes and systems of both organizations, identifying synergies and developing the appropriate action plans to ensure an efficient and successful integration. The transaction is expected to close in the fall.
Analysts' Estimates
Earnings per share and net operating income per share for the second
quarter amounted to
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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