Catholics For Sebelius

2013-05-08

Economical Insurance reported Wednesday consolidated net income of $26.9 million for the first quarter of the year, a decrease of $13.6 million from the same period last year, which it said is due mainly to a reduction in realized gains.

However, the Waterloo, Ont.-based property and casualty insurer noted that including other comprehensive income, it increased mutual policyholders equity by $48.1 million, a $7.3 million increase over the first quarter of 2012.

The insurer also reported gross written premiums of $400.4 million for the quarter, up from $381 million for the same period in 2012 and a strong combined ratio of 96.9%, 0.3 percentage points higher than the same quarter a year ago.

Its generated underwriting income for the quarter was $13.4 million, about the same as Q1 last year. The company attributes that growth to general volume increases across all lines of business, and an increase in average premiums for all lines except personal auto.

For personal auto, the company reported a combined ratio of 90.8% for the first quarter, a 1.6 percentage point improvement over Q1 in 2012. While it said that Ontario personal auto currently performs satisfactorily, the company remains concerned about a number of factors that could have a negative impact on the future profitability of this business.

For personal property, Economical reported a combined ratio of 90.6%, a 5.0 percentage point increase over a strong first quarter last year, a change the company says signals a return to more normal winter weather conditions.

The insurers commercial property and liability business recorded a disappointing combined ratio of 115.5%, 7.6 percentage points higher than the same quarter in 2012, while commercial auto produced a Q1 combined ratio of 89.3% compared to 106.5% in the same quarter of 2012.

While the companys investment income did increase overall from $26.3 million in Q1 2012 to $34.9 million for Q1 this year, the persistently low interest rate environment continued to depress interest income while realized gains on the remainder of the investment portfolio were down by $14.1 million compared to a year ago, its statement noted.

This reduction in realized gains drove the decline in quarterly net income. Overall investment quality remains very strong with over 76% of total investments held in high quality government and corporate bonds, with the balance primarily held in common and preferred shares, it added.

Our first quarter results show that the company continues to make real progress on its profitable growth strategy, Economical president and CEO Karen Gavan commented in a statement on the results.

At the same time we are investing significantly in transforming the business to ensure the sustainability of Economicals competitiveness for the longer-term, she added.

We need a level playing field with our competitors to achieve our vision of Economical becoming the leading property and casualty insurance company in Canada, Gavan noted, referring to the companys demutualization process.

Although we do not yet have the regulations we need to proceed with our demutualization, we have actively pursued discussions with the federal government as they work to develop those regulations, with a view to ensuring a framework for demutualization that works for Economical, she added.

The total costs in Q1 from what the company calls its business transformation program were $4.9 million, $3.3 million of which was included in underwriting results. Excluding the impact of this investment, the combined ratio for the first quarter of 2013 would be 96.1%, a 0.5 percentage point improvement over the same quarter a year ago, the companys statement noted.

By Doug Rich

The Federal Crop Insurance program has evolved from what was basically an experiment started to help farmers recover from the Great Depression and Dust Bowl to one of the most vital programs offered to farmers. Producers and their bankers rely heavily on crop insurance to provide a reliable safety net for crop production.

Art Barnaby, professor of agricultural economics at Kansas State University, gave an overview of the crop insurance program and the changes it has gone through for Sorghum U, an educational series sponsored by the Sorghum Checkoff, Sorghum Partners LLC, and High Plains Journal.

Crop insurance dates back to the 1930s when it was a government-run program with government employees doing both sales and service. Barnaby said that changed in 1980 when a public/private partnership was established with the passage of the Federal Crop Insurance Act. Four years later another major change came along with proven yields.

Prior to that everything was set on a county yield number, Barnaby said. Those with lower yield tended to buy insurance and those with higher yields did not buy insurance. This led to unintended subsidies.

Crop insurance continued to change with the addition of Market Value Protection in 1991, and Crop Revenue Coverage/Revenue Protection in 1996. The Agricultural Risk Protection Act came along in 2000 to encourage a greater number of farmers to participate, Barnaby said. The Federal Crop Insurance Reform Act of 1994 was passed, making participation in the crop insurance program mandatory for farmers to be eligible for deficiency payments under price support program, certain loans, and other benefits.

Now about 270 million acres are insured, Barnaby said. A large number of farmers are now enrolled in the program largely due to the law change in 2000.

In the last farm bill debate there were several proposals to reduce the costs of crops. These included limiting the premium subsidy for farmers and having a means test.

It was forecast, as we saw the drought developing, that this would cost the government $40 billion, but that was clearly nonsense from the start, Barnaby said. It was a near impossibility, in fact.

Barnaby pointed out that ad hoc disaster aid, Supplemental Revenue Election, and Agriculture Risk Coverage are just free crop revenue insurance.

If you took the crop insurance program as it is and provided a 100 percent subsidy that would in effect be a disaster program, Barnaby said.

The use of put options in crop insurance is another recent change. Barnaby said all USDA risk management tools including the Average Crop Revenue Election; Supplemental Revenue Election, marketing loans and ARC are derivatives of options and insurance. Adding put options and insurance to revenue insurance is more efficient than insuring price and yield separately. A major change from previous crop insurance contracts is that all contracts now use the same projected price based on new crop futures prices.

As a result all Common Crop Insurance Policy contracts have the same yield guarantee, Barnaby said.

Beginning in 2011 with CCIP contracts any additional revenue that is coming from revenue protection has to be due to the put derivative that is built inside the insurance contract.

So if prices go down the payment will be higher under this contract than under yield only, but all of the additional payment has to come from the price component, according to Barnaby.

Out of the top 12 most common crop insurance contracts for grain sorghum in South Dakota the top three were revenue protection contracts. Barnaby said this is the case all across the country.

This is the cheapest form of price protection you will ever get at less than one cent per bushel, Barnaby said.

Many farmers who would never have used crop insurance in the past have changed their minds. According to the Risk Management Association in 2012 farmers invested more than $12 million in premium for more than 6,600 crop insurance policies. Last year Federal Crop Insurance protected nearly 70 percent of all corn acres, 80 percent of all soybean acres, and 50 percent of all wheat acres.

Doug Rich can be reached by phone at 785-749-5304, or by email at richhpj@aol.com.

Date: 5/13/2013

The Coastal Shipping and Inland Water Transport Summit held here the other day has stressed the importance of an integrated multi-model transport infrastructure with emphasis on coastal shipping and inland water transportation.

According to Chief Minister Oommen Chandy, who inaugurated the summit, water transport is more economical and eco-friendly than road and rail movement. He said that in India with a coastal line of nearly 7,500 km, the cargo carried by water transport comes to below seven per cent of the total cargo carried at the national-level. In the state, various environmental factors  make water transport unavoidable.

As part of giving more importance to water transport, the state government proposes to divert at least 20 per cent of the cargo through coastal shipping by 2015 and 40 per cent by 2020. Initially, the priority will be given for specified cargos. Apart from Vizhinjam, Kollam, Alappuzha, Kodungalloor, Ponnani, Beypore and Azheekkal ports are also earmarked for development in Kerala. At the summit, Excise Minister K Babu said ports and logistics were having a great role in the sustainable development of Kerala and offers immense investment potential.

He added that the Kerala Maritime Board which will act as a single window for facilitation for investors and operators in the port, shipping and logistics sector will be established in the state soon.

Experts who attended the summit said the roads are grossly inadequate to contain the increasing number of vehicles and the rail network is unable to cope with the demand. The only solution is to shift to coastal shipping and inland water transport.

They feel that the Cochin Port must expand. Vizhinjam port has to be developed with capacity to receive large container ships. This will establish a cargo link between Vizhinjam and other Indian ports. The warehouses, godowns, machinery and the rail and road connectivity to the ports must be upgraded to ensure effective functioning of these ports, they said.