Return to flip book view
q3 LEADERSHIP REPORT 2022
COMPANY PROFILE COMPANY PROFILE as of September 30 2022 Brokers DISTRIBUTION SPLIT 20 Agents 3 Broker 86 Agent 14 Digital 0 LINE OF BUSINESS SPLIT Automobile 28 Commercial 24 Employees CONTENTS Company Profile 3 Our Purpose values 4 Executive Summary 5 IT Update 6 Marketing Distribution 6 Operations 7 Financial Results Q3 YTD 2022 8 2022 YTD Financial Highlights 9 Financial Results Q2 YTD 2022 12 Other Information 14 Farm 20 44 ROI Residential 28 ROE Investments 3 9 0 3 39 9M Net Risk Ratio MCT Q2 Expense Ratio Claims Ratio Gross Risk Ratio Combined Ratio 118 5 56 2 364 139 7 42 0 98 2 3
OUR PURPOSE VALUES PURPOSE To protect the unique lifestyles of each of our members by empowering our people to provide solutions that are creative transparent and member centric OUR VALUES Integrity We are open honest and ethical We hold authenticity and transparency in the highest regard Respect We treat others the way they want to be treated We show empathy for others by listening and keeping an open mind Courage We believe it takes courage to lead We respond to adapt and embrace the changing world in which we operate EXECUTIVE SUMMARY Sales continue to slow as expected with a YTD growth rate of 7 significantly lower than planned for Sales are projected to end the year at a similar pace We continue to see growth in our Farm and Commercial portfolios The Leadership team has been working with the Board of Directors to develop Nova s strategic plan for the next several years The findings from the reports from the consultant Stave Smith are being incorporated into this plan A big focus of the plan is to become more Member Centric September was the end of the third quarter From a financial perspective July saw an underwriting loss but a large investment gain August and September results were significantly better from an underwriting income perspective seeing underwriting gains in both months However both August and September again had investment losses July and September netted to favourable income in month Investment markets continue to be volatile and we continue to see the impact of the latest round of interest rate hikes on the bond portfolio the investment portfolio remains solid The quarter ended with an underwriting profit of 781K and an investment loss of 1 3M Partially offsetting the losses is the gain from the sale of the Simcoe office of 448K The YTD the net loss is 63K after taxes The MCT is expected to be between 360 and 365 The September YTD result are promising as we see positive signs on the underwriting front Effective September 1st 2022 Nova implemented a rate increase on the property portfolio of 8 Recruitment was again a priority during the quarter We were able to fill several vacancies however there are some key positions that need to be filled in Q4 of 2022 5
IT UPDATE INSURANCE PLATFORM UPDATE The rollout of the upgraded Cognition platform is continuing at a great pace thanks to the collaboration between IT and the Personal Lines department Currently the New Business Auto adoption rate is at 97 for Personal Auto and IIRCA The Property lines of business is next in line to deploy and will be the focus over the next quarter IT will continue to work with the business units to investigate and collect requirements to ensure a smooth transition to the new platform MICROSOFT 365 TRANSITION Working with partner AOS conversion of our Nova team members to Microsoft 365 has begun Microsoft 365 is the upgraded version of Office 365 Core productivity suite which includes Word Outlook Excel Teams This will allow a more streamlined platform for data access Device control Anti Virus control and other functionality to allow better collaboration across the organization MARKETING DISTRIBUTION UPDATED RECRUITMENT STRATEGY In September Nova departed ways with the Chief Brand officer As this opportunity presented a chance to review the structure Effective September the Support Specialists have moved under Operations Employee Experience is now HR Employee Experience and reports directly to the CEO The remaining Brand team is now Marketing Distribution and will report to the Chief Marketing Distribution Officer Recruiting for this new role is underway with plans to have it filled by the end of Q4 2022 OPERATIONS FARM AND RESIDENTIAL PROPERTY RATE UPDATE 60 day update COO Since my start date 60 days ago I have been able to meet with each Underwriter Claims support and Loss Prevention staff member It is abundantly clear our staff care very deeply about Nova Mutual and extoll our values daily Further they know the role each plays in our success and the teams are highly engaged with a good spectrum of knowledge in place across all lines Work exists to define Underwriter Authority levels around processes to improve efficiency Collaboration with IT around our ability to automate a section of Commercial Property renewals will open underwriter capacity to focus on quality assurance activities and building broker agent relationships From a service perspective we are in a very good state given the few FTE issues we have around leaves and vacancies We are underway in our activities to fill those vacancies The products we offer are more than able to meet the needs of our members both current and future but diligence around product evolution and pricing sophistication will need attention with collaboration from our partners at FMRe A focused and regular cadence of product changes and pricing inflation actions in each line is a priority for me in 2022 2023 The next pricing action is tentatively scheduled for Farm and Commercial coverages in Q2 2023 but may be impacted by Cognition implementation and some water and credit pricing actions that need to be built and executed as a priority The current search for an Underwiring Manager once filled will enable us to build and execute the strategic plan and deal with any issues as they arise I am very excited to be part of this team and look forward to showing the board the results and achievements as they are realized 7
FINANCIAL RESULTS Q3 YTD 2022 2022 YTD FINANCIAL HIGHLIGHTS OVERVIEW Gross Written Premiums GWP were up from the prior year and below plan for Q3 2022 by 3 and 13 respectively YTD GWP were solid at 27 9M YTD GWP is lower than Plan by 10 and higher than the prior year by 7 While Q3 2022 saw higher General expenses compared to Q3 2021 YTD expenses are lower than plan by 4 YTD Underwriting profit of 780K is significantly better than plan and higher than the prior year The YTD Combined Ratio is 98 2 105 7 2021 Poor market performance thus far in 2022 has resulted in Net Investment losses of 1 3M 2 6M lower than plan and lower by 2 3M from the prior year 26 1 31 1 28 0 22 4 27 1 23 7 GROSS WRITTEN PREMIUM NET WRITTEN PREMIUM 20 3 23 7 22 4 13 0 13 9 12 6 NET PREMIUM EARNED NET CLAIMS INCURRED 4 1 5 0 4 8 0 8 0 1 0 8 GENERAL EXPENSES UNDERWRITING PROFIT 2021 PLAN 2022 Up 7 from 2021 Down 10 from plan 2021 PLAN 2022 Up 6 from 2021 Down 12 from plan PREMIUMS YTD premiums are up 7 versus the prior year and are 10 below Plan Nova Mutual has written 2 8M in new business which is down 32 from the prior year The decrease in new business premiums versus the prior year is driven by lower Auto and Commercial YTD Agribusiness and Commercial total premiums are up over last year by 18 and 10 respectively New business in Agribusiness is down 15 YTD and Commercial is down 49 Specialty lines accounted for 44 of premiums YTD versus 41 in the prior year Although we fell short of our Plan in terms of Premiums our revised focus on slowing growth is reflected in the YTD GWP 2021 PLAN 2022 Up 10 from 2021 Down 5 from plan 2021 PLAN 2022 Up 16 from 2021 Down 4 from plan 2021 PLAN 2022 Down 4 from 2021 Down 10 from plan 2021 PLAN 2022 Up 1 6M from 2021 Up 0 9M from plan 9
2022 YTD FINANCIAL HIGHLIGHTS DISTRIBUTION The chart below represents the year over year change in premiums by product by distribution channel In 2022 there were several factors impacting the agency s new business sales The agency channel is still focused on working with members on ensuring correct insured to value and rebalancing of the portfolio between Nova agents A new agent was hired in Q1 and has turned their focus to generating new business beginning in the third quarter Efforts continue to recruit a new agent to expand the and assist with growing the agency book of business There is a strong emphasis on ensuring the correct focus attention and service is available to meet our members needs YTD premiums from the agency channel are slightly higher than the prior year however new business is down 15 for the same period Renewal premiums are up 4 which includes the current inflation factor on residential properties YTD written premiums sourced through the Broker channel are up 8 from the prior year with new business down 34 over the same period Broker consolidation continues industry wide In 2022 Nova Mutual continues to see several contracted Brokers sell to larger Brokers Campbell Roy Eldridge and Newman Insurance At this point we are not certain how these transactions may affect Nova Mutual however will continue to monitor the relationships and activity We continue to watch the 2 larger brokerages that own over 50 of the book of business as these Brokers continue to search out new M A activity AGENT Q2 2022 BROKER Q2 2022 Written Premium New Business Renewal Written Premium New Business Renewal Automobile Commercial Agribusiness Garage Auto Residential 3 12 6 0 5 16 2 40 0 13 1 14 7 0 8 0 10 19 28 7 34 50 15 47 17 4 31 30 91 9 Total 2 15 4 8 34 16 2 15 4 8 34 16 Late September and early October 6 broker contracts were cancelled The effect of this will be seen over the next 12 months as these broker client policies come up for renewal The estimated reduction in premiums from these brokers is 3 0M Overall renewal premiums are performing very well up 15 from the same period last year 11
FINANCIAL RESULTS Q2 YTD 2022 CLAIMS COMMISSIONS GENERAL EXPENSES There were 118 new claims reported in the quarter with an average gross claim cost of 27K YTD 620 new claims 25K average QTD Claims count activity is down 25 4 year over year due in part to lower claims during September 2022 Although the claim count is lower than Q3 2021 the average gross claims cost is approximately 8 higher Gross incurred claims Q3 YTD were 1 2M lower over the previous year The severity of claims is lower year over year YTD commissions as a percentage of GWP of 16 2 are lower than anticipated 16 4 The expected full year CPC is estimated to be approximately 149K at this time The 2022 CPC estimate is lower than 2021 due in part to the previously announced qualification changes of reducing the Loss ratio to 45 and the CPC rate lowered to 10 On a YTD basis Nova incurred 16 3M in direct incurred claims 3 8M reinsurance and paid out 4 7M to settle claims during the quarter In Q3 there were 2 claims over 500K total loss house fires with policy inception years of 2015 and 2019 total incurred cost of 2 1M This is slightly higher than Q2 last year where there were 2 fires significantly over retention 1 8M When looking at total gross claims incurred in Q3 2022 294K or 5 6 of all gross claims incurred came from new business 2022 YTD General expenses of 4 8M are 203K below Plan of 5 0M primarily the result of lower IT costs and personnel costs due to timing and vacancies YTD Nova Mutual has reduced the FTE s by 2 10 new hires 1 return from leave 3 on leave and 10 terminations departures As of September 30 2022 Nova Mutual s active FTE compliment is 44 The YTD expense ratio of 42 0 is slightly better than the Plan and prior of 43 0 and 41 4 respectively The Q3 fully allocated Claims ratio of 54 8 56 2 YTD is slightly higher than Plan of 54 3 58 9 YTD and lower than the prior year of 74 7 64 3 YTD CLAIMS RATIOS The chart below shows pure loss ratios1 YTD by line of business YTD TOTAL 1 YTD AGENT YTD BROKER Automobile Commercial Agribusiness Garage Auto Residential 2022 67 0 27 6 44 9 0 0 83 8 2021 39 9 83 7 101 7 0 0 71 7 2022 58 5 12 7 13 9 0 0 34 6 2021 22 3 1 4 9 5 0 0 25 8 2022 69 0 28 2 49 7 0 0 94 1 2021 44 2 87 6 119 8 0 0 81 4 Total 57 9 69 5 38 8 19 7 60 9 78 3 Excludes Reinsurance IBNR s Internal Adjusting Expenses and Allocated Expenses 13
OTHER INFORMATION 4 0M 3 518 816 3 5M TOTAL GWP BY MONTH 3 0M 2 5M 1 2M 3 778 084 2021 3 662 604 3 268 898 3 268 898 3 021 925 3 024 032 2 722 299 2 991 488 2 624 895 2 341 058 2 435 012 3 268 898 0 8M 3 021 925 3 021 925 3 268 898 2021 2022 1 0M 3 268 898 3 231 653 1 119 325 1 009 893 0 6M 654 274 2022 743 631 720 646 561 362 822 600 779 166 804 878 822 600 804 878 666 054 822 600 822 600 804 878 COMMERCIAL GWP BY MONTH 804 878 576 408 501 815 2 0M JAN FEB MAR APR MAY JUN JUL AUG SEP 1 2M AUTO GWP BY MONTH 955 135 969 788 998 170 FEB MAR 948 307 904 640 942 350 JAN FEB MAR APR JUN JUL AUG SEP 0 6M 533 074 657 166 762 365 778 846 0 8M 648 912 0 2M JAN FEB MAR 0 6M 0 4M APR MAY 916 325 906 971 1 007 240 854 190 852 058 908 522 921 661 FEB 713 133 2021 MAR APR 2 0M JUN MAY JUN JUL 2022 AUG 1 5M 0 5M SEP 390 949 407 907 JUL AUG AGRI GWP BY MONTH SEP 2 236 596 2 223 549 1 569 746 1 559 388 1 413 887 1 665 221 1 594 773 1 422 733 1 629 996 1 0M 614 074 JAN 949 467 971 421 444 249 440 579 436 525 386 488 2 069 333 799 792 692 874 2022 560 894 531 803 448 015 1 072 597 857 301 SEP 679 263 2 5M 1 2M 1 0M AUG 2021 678 044 605 937 0 4M 450 732 2022 MAY JUL 920 237 828 727 722 263 2021 JUN 567 775 860 812 759 881 MAY 0 8M 914 842 910 551 792 635 715 932 RESIDENTIAL GWP BY MONTH APR 798 625 1 018 387 966 208 893 030 962 112 0 6M JAN 1 0M 1 0M 0 8M 0 4M 0 0M 1 499 738 1 317 454 1 202 530 1 198 753 918 524 713 070 548 493 JAN FEB 2021 MAR APR MAY JUN 2022 JUL AUG 706 496 SEP NET CLAIMS INCURRED BY MONTH 15
OTHER INFORMATION INVESTEMENTS YTD net investment loss was 1 3M The results are below Plan by 203 and prior year 229 The YTD return on investments was 3 9 net of fees These losses are due to the market volatility that the world has been experiencing since the beginning of 2022 and the impact of recent interest rate increases from the Bank of Canada The Bank of Canada s overnight lending as of September 7 is now at 3 25 The GIC portfolio continues to reinvest maturities at increasingly higher interest rates As at September 30 2022 the market value of investments under management with PH N is 33 0M representing 83 of the total investment portfolio Effective March 31 2022 the 33 Park Road office building in Simcoe Ont was sold and the gain on sale was recognized 448K in Q1 This property also generated rental revenue of 18 8k YTD Broker loans are in good standing YTD income is 28 5K MCT SCORE The MCT Minimum Capital Test score is a regulatory measure of financial strength This test compares the company s capital against the risk profile of the organization The regulatory minimum MCT score is set at 150 while the company s internal target is set at 300 As at September 30 2022 it is estimated that the MCT score will be in the range of 360 365 This is similar to the Q2 2022 MCT score of 363 8 Q4 2021 364 6 INVESTMENT MIX ROI 3 9 Investments 39 9M Other 0 0 Broker Loans 3 0 Global Equities 4 0 GIC s 6 0 Real Estate 8 0 Canadian Equities 15 0 Bonds 64 0 17
OTHER INFORMATION 19