Tuesday, November 18, 2008

MARKET TURMOIL AFFECTS ICBC

ICBC INVESTMENT INCOME
OFF BY $166,000,000

ICBC manages through third quarter — Nov.13
Conservative and diversified investments lessen impact of market downturn

ICBC has reported its financial results for the first nine months of 2008, showing strong net income despite a drop in investments. However, the recent turmoil in the financial markets is expected to have a more substantial and negative impact on the corporation's fourth quarter.

Net income at ICBC for the first three quarters of 2008 was $437 million, 15 percent lower than for the same period last year of $513 million. This decrease is largely the result of a decline in investment income, which stood at $360 million year-to-date for the third quarter of 2008, compared to $526 million for the first three quarters of 2007 (including the sale of the Central City development in Surrey last year which generated $133 million in investment income).

"In terms of premium revenue, claims and operating costs, our company results are solid but, like everyone else, we have been affected by the downturn in the financial markets," said Geri Prior, ICBC's interim president and CEO. "However, we are coping during these tough times, due in large part to our diversified and conservative investment strategy, and a moderation in the increase of claims costs. We entered this economic downturn with strong retained earnings which act as a contingency fund to help protect our customers. We ask our customers to do their part by driving safely and reducing crashes to help keep rates low and stable."

ICBC did not increase basic premium rates this year and, as of July 1, 2008, ICBC's optional rates decreased by an average of three percent. Customers who have purchased the same basic and optional policies from ICBC over the last five years have seen only a $2 increase on average in their premium. Claims and related costs for the nine months ending September 30, 2008, were $2.2 billion, approximately the same as for the same period in 2007.

"The downward pressure in the equity markets and changing economic trends mean we cannot rely on investment income to the same extent we have in the past," said Prior.

Investments

  • More than 65 percent of ICBC's investment portfolio is invested in high-quality bonds supplemented with a smaller allocation of equity investments. ICBC saw losses on equities during the third quarter, which were partially offset by gains on bonds.
  • ICBC's investment income for the first nine months of 2008 was $166 million lower than its investment income for the first nine months of 2007, with the corporation anticipating a further drop in its investment income for the fourth quarter of 2008. The sale of the Central City development in Surrey in the third quarter of 2007 partially explains the decrease in investment income in 2008, with the remainder attributed to lower returns on investments.
  • The downturn in the financial markets has also had a negative impact on the value of ICBC's unrealized gains which has reduced the corporation's contingency fund.

Claims costs

  • There was a slow down in the growth of claims costs during the third quarter of 2008, in part due to a number of claims-reduction initiatives at ICBC, less rain than is usually seen in the first nine months of the year, and a moderation in vehicle population growth.
  • ICBC's commitment to investing in road safety to reduce the number and severity of crashes also continues to play a positive role in lowering claims costs.

Insurance premiums

  • Premiums earned for the first nine months of 2008 increased to $2.7 billion from $2.6 billion for the same period in 2007. The number of insured vehicles on BC's roads was up by 70,000 in the first nine months of 2008 compared to the same period last year, although in the last few months this growth has been slowing.

Insurance rates

  • ICBC lowered its optional insurance rates this year for the third time in four years. Optional rates were reduced partly as a result of the continued decline in auto theft across the province - which is down from 12,000 to 9,900, or 17.5 percent, from January 1 to September 30, 2008, compared to the same period for last year. Basic rates for 2008 stayed the same for the second time in four years.

Operating costs

  • ICBC continues to lead the industry in low operating costs. The expense ratio - operating costs, broker commissions and premium taxes as a percentage of earned premiums - was 18.5 percent for the first nine months of 2008, which continues to compare very favourably to the insurance industry.

Customer satisfaction scores

  • ICBC continues to maintain high levels of customer satisfaction, as confirmed by independent third-party research from NRG Research Group. Levels of customer satisfaction with ICBC for our various lines of business are:
Claims services: 84%
Driver licensing services: 93%
Insurance services: 93%

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