It has now been widely reported that Economical Insurance, one of Canada’s oldest property & casualty (P&C) insurance companies, is deep into its journey of becoming the first Canadian mutual insurer to transition to public ownership.
The plan for demutualization had been on the cards for some time, but it was really kicked into gear when Rowan Saunders joined Economical Insurance as president and CEO in November 2016. Saunders’ primary task as the new leader was to take the 148-year-old firm, which was very traditional in its methodology, its approach to market and its distribution strategy, and transform it into an innovative and forward-thinking company fit for an initial public offering (IPO).
One area that needed a real shake-up was Economical’s commercial lines portfolio. The firm brought on a new leader - Fabian Richenberger, EVP, commercial insurance - who completely re-shaped the commercial portfolio by exiting volatile and habitually underperforming lines of business, and re-priced the portfolio with more modern and sophisticated pricing methodologies.
Reflecting on his appointment, Richenberger said: “I was very excited to join Economical and help the company prepare for our IPO. I was attracted to the company for its entrepreneurial spirit and empowerment culture, and having had the pleasure of being aboard for three years now, I can say that all those promises have come true. I feel very much so that Economical is agile and innovative, and that we have a very engaged company that is well on its way to achieving a market-leading position.”
When Richenberger joined Economical, his first task was to restore the profitability and improve the financial performance of the commercial lines portfolio. At the time, the portfolio was around $750 million in premium, with a combined ratio of approximately 112%. Richenberger made the decision to reduce that top line down from $750 million to more like $650 million at the end of 2019 by exiting poorly performing lines of business. By exercising strong portfolio management, the team managed to bring the combined ratio back down to a much healthier 101% by the close of 2019.
“Then we focused on building market-leading offerings and capabilities in transportation, commercial auto and commercial property, which has allowed us to grow the business again,” Richenberger told Insurance Business. “As one of my former mentors told me: ‘You cannot shrink your way to greatness.’ It was important for us to prove to the marketplace that we can grow our portfolio profitably, and we have experienced some decent organic growth. In Q2 of 2020, we doubled our new business writing from $43 million to $86 million year over year, so we’re comfortable that we have been able to live up to our growth commitments.”
From a strategic point of view, Economical identified three key areas in commercial lines to focus on during its demutualization journey. The first segment was small business, in which the insurer has enhanced its offering by investment in more digital capabilities. The second area was the middle market, in which Economical is now gaining more market share having had an opportunity to increase its property capacity to $100 million.
“Our third pillar of focus has been the expansion of our specialty lines business, which would include products like directors’ and officers’ (D&O) insurance, errors and omissions (E&O), surety and so on,” said Richenberger. “We want to compliment our regular P&C business with a strong specialty lines business, which has typically had better loss ratios in the Canadian marketplace. The aim is to create a balanced and profitable portfolio with the help of our key broker partners.”
