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____ Wednesday November 4, 2015 ____

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xQuarterly

Economical Insurance reports financial results for the Third Quarter and Year-to-date 2015

Increased gross written premiums by 2.9% over third quarter 2014; Recorded a combined ratio of 89.8% for the quarter; Generated net income of $66.1 million for the quarter; Increased total equity by $42.3 million since December 31, 2014 to $1.72 billion

Waterloo — Economical Insurance announced it's consolidated financial results for the three and nine months ended September 30, 2015. “Economical delivered excellent performance during the quarter with each line of business providing a strong contribution to our underwriting profit,” said Karen Gavan, president and CEO. “The rate decreases mandated in 2014 for Ontario auto are now fully reflected, and we are encouraged by the recently enacted budget measures which will provide some offsetting cost reductions. We continue to closely monitor rate adequacy in the context of a dynamic regulatory environment. Our significant investment in information technology infrastructure upgrades continued during the quarter along with our ongoing commercial pricing actions. We remain confident that these measures will deliver profitable growth over time.”

Gross written premiums for the third quarter 2015 grew by $14.6 million, or 2.9%, over the same quarter a year ago. Personal lines premiums grew by $20.4 million, or 6.2% over the same quarter a year ago. This growth was primarily driven by increased auto policy volumes in Ontario and British Columbia as well as growth in personal property primarily driven by increased policy volumes and targeted rate increases. Commercial lines premiums declined by $5.8 million, or 3.4%, over the same quarter a year ago. The overhaul of our commercial pricing strategy has resulted in decreased policy volumes which more than offset targeted rate increases. Year-to-date, personal lines premiums grew by $46.4 million or 5.1% while commercial lines premiums declined by $6.5 million or 1.2% over the same period a year ago.

Underwriting activity for the third quarter 2015 produced a $48.9 million underwriting profit, resulting in a combined ratio of 89.8%, compared to an underwriting loss of $38.3 million, resulting in a combined ratio of 108.2%, in the same quarter a year ago. This considerable improvement was due to the strong underlying performance in all lines of business and reduced catastrophe losses. There was also a significant benefit from the regulatory reforms enacted in Ontario during the quarter, resulting in a reduction in reserves for certain open claims. These reforms partially offset rate reductions mandated in 2014.

Information technology infrastructure investments, including costs associated with the replacement of our policy administration system, impacted the third quarter 2015 expense ratio by 2.1 percentage points and 1.8 percentage points year-to-date compared to 0.6 percentage points and 0.3 percentage points for the comparable prior year periods. We believe these investments will drive profitable growth and further improve our operational efficiency in the longer term. Economical’s business transformation program was completed during the fourth quarter of 2014. Its impact on the combined ratio was an increase of 0.8 percentage points for the third quarter 2014 and 0.9 percentage points for the nine months ended September 30, 2014.

The personal auto combined ratio improved over the same quarter a year ago due to our continued improvements in predictive analytics and pricing sophistication, the benefit from the regulatory reforms in Ontario (10 percentage point reduction in the combined ratio for the third quarter) and improved loss development. The personal property combined ratio improved compared to the same quarter a year ago due to targeted rate increases, and benign weather conditions which resulted in lower catastrophe losses and claims frequency. Overall, personal lines produced an underwriting profit of $37.4 million compared to an underwriting loss of $9.1 million in the same quarter a year ago. Year-to-date, personal lines produced an underwriting profit of $62.6 million compared to $12.6 million in 2014.

The commercial auto combined ratio improved over the same quarter a year ago primarily due to the benefit from the regulatory reforms in Ontario (12 percentage point reduction in the combined ratio for the third quarter). The underlying book of business continues to perform well. The commercial property and liability combined ratio significantly improved over the same quarter a year ago primarily due to underwriting and pricing actions implemented over the past twelve months, improved loss development and a large decrease in both frequency and net claims severity resulting from benign weather conditions. Overall, commercial lines produced an underwriting profit of $21.5 million compared to an underwriting loss of $29.2 million in the same quarter a year ago. Year-to-date, commercial lines produced an underwriting profit of $3.9 million compared to an underwriting loss of $53.4 million in 2014.

Investment income decreased $16.0 million from the third quarter a year ago to $20.0 million. Dividend and interest income combined were relatively flat quarter over quarter. However, increased bond yields and softening equity markets resulted in unrealized losses during the quarter. Investment quality remains strong with more than 76% of total investments held in government and investment-grade corporate bonds as at September 30, 2015. The balance of investments is primarily held in common and preferred shares of large, well-established companies.

Net income increased by $65.2 million over the same quarter a year ago primarily due to the strong underwriting performance partially offset by a decrease in investment income. Annual net income increased by $88.6 million, driven by strong underwriting performance and increased investment income.

Economical’s capital position remains strong. Total equity was $1.72 billion at September 30, 2015, an increase of $42.3 million, or 2.5% since December 31, 2014. This is despite a loss of $71.1 million (net of tax) recorded in other comprehensive income for the nine months ended September 30, 2015 related to a reduction in unrealized investment gains. Economical’s minimum capital test ratio is at 287%, which remains significantly in excess of regulatory requirements as of September 30, 2015.

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