A combined ratio of 106.5 would be a sign of trouble for almost any property/casualty insurer. For Allstate’s Esurance, the number is good news.
Esurance, an online auto and home insurance provider, booked the combined ratio during the 2015 third quarter. Any number above 100 is considered problematic in most cases, but for Esurance, its latest combined ratio is the result of steady improvement driven by tighter underwriting, higher average auto premiums, reduced advertising spending and conscious reduction in policy growth.
In the 2014 third quarter, Esurance produced a much worse 116.6 combined ratio.
As parent Allstate continued to implement its improvement strategy, Esurance net written premium rose 3.7 percent in the 2015 third quarter compared to the same period in 2014. Policies in force also grew 3.7 percent in Q3 versus last year, Allstate said.
In the 2015 second quarter, Esurance generated a 9.1 percent increase in net written premium versus the 2014 second quarter. There was also a reduction in policy growth to 6.4 percent over Q2 2014.
In other words, Allstate’s focus on giving Esurance some breathing room is helping it, gradually, to get a handle on expenses and inch closer to profitable status.
Don Civgin, Allstate’s president of emerging businesses, emphasized during the insurer’s Q3 earnings call that Esurance is still growing (twice the size of when Allstate first purchased it in 2011 for $1 billion), and that an eye on ultimate profitability for the division is still part of the plan.
“We do want it to get to the point where that size begins to generate appropriate profitability,” Civgin said. “So I feel really good about where [Esurance] is as a business. They had a great quarter. They are on the right path. [Esurance executives have] done a terrific job of getting…the company to still grow” even with a drop in marketing spending.
Still, Civgin said, Esurance continues to expand its presence in other states and grow its product roster.
“I don’t view this as a business that should grow 3 percent for the rest of eternity,” Civgin said. “I think this was an inflection point to consolidate the gains we’ve had from a volume point of view and get the business to the point where operationally and from a loss ratio perspective [it] is profitable.”
“We have not stopped investing in that business for growth in any way,” Civgin added.