Co-operators downgraded as claims rise

Despite an encouraging half-year financial return, The Co-operators General Insurance Co. (TSX: CCS.PR.A) saw its net income drop for the second quarter reporting period as claims costs rose. The company’s net income fell to $7 million for the quarter ending June compared with the $11.5 million reported for the same period a year earlier. This translates into earnings of 20 a share for the latest quarter against the 43 a share made a year earlier.

For the first six months of this year, the company posted net income of $4.7 million versus a loss of $8.5 million at mid-2001. This equals earnings of 2 a share for the latest quarter compared with a loss of 60 a share shown for the first half of 2001. Gross written premiums rose over the second quarter and half-year periods by 6.3% and 5.6% respectively. Net earned premiums also climbed to $333 million for the second quarter of this year compared with the $315 million reported a year prior. The company’s claims ratio rose to 79.2% in the second quarter of this year against the 72.7% level at the end of June 2001. The combined ratio similarly blossomed to 108.1% for the current quarter from 103.0% a year earlier.

This lackluster performance prompted rating agency A.M. Best to downgrade the insurer’s financial strength rating from A- (excellent) to B++ (very good). The company has struggled with poor underwriting results in successive quarters, causing the rating agency to comment that “its level of capitalization has fallen below A.M. Best’s expectations for an excellent-rated company”.

Co-operators also came under fire recently after it decided not to renew about 1,300 auto policies for customers in St. John’s, Newfoundland who do not buy multiple policies. Newfoundland Minister of Government Services and Lands, Walter Noel, admits that the practice does not violate law, but says it is tantamount to tied-selling. In response, Co-operators notes that for the affected group the company is paying out $2.05 in claims for every dollar in premiums, versus a loss ratio of 164% for multi-line clients.