August 13, 2008 / 4:43 PM / 10 years ago

Storms, stock markets lash ING Canada profit

TORONTO (Reuters) - Home and auto insurer ING Canada Inc IIC.TO said profit fell 42 percent in the second quarter as weak equity markets hurt investment gains and severe weather knocked underwriting income.

The drop in profit was bigger than analysts expected, and ING Canada’s stock was down 2 percent at C$37.93 on the Toronto Stock Exchange early on Wednesday afternoon.

Executives have long expressed a desire to expand through acquisitions, and the environment for dealmaking looks brighter than it has in the past several years, President and Chief Executive Charles Brindamour told Reuters.

ING Canada, the country’s biggest property and casualty insurer, thinks that industry profits will edge down toward long-term averages, and the cost of capital has gone up a bit, Brindamour noted.

“When the spread between those two variables is shrinking, the environment tends to be more conducive to transactions,” he said. “If I look ahead in the coming 12 months, it is a better environment than the last two or three years have been.”

Brindamour declined to comment on talks or deals that might be in the works. The company has C$1.4 billion in excess capital and debt capacity for potential purchases.

Early on Wednesday, ING said net income was C$112 million ($105 million), or 91 Canadian cents a share, in the three months ended June 30. That was down from C$194.3 million, or C$1.56 a share, in the same period a year earlier.

On a net operating basis, it earned 89 Canadian cents a share, down from C$1.06 a year earlier.

Analysts had expected a profit of 92 Canadian cents a share, according to Reuters Estimates.

Severe spring storms and an extended winter hurt underwriting income, which fell 18.4 percent to C$43.4 million.

Within the personal property business, the company’s underwriting loss was C$44 million due to C$40.9 million in “catastrophe claims” from the storms, the highest quarterly amount in three years, RBC Capital Markets analyst Dennis Westfall said in a research note.

Catastrophe claims are those from a single incident or series of related incidents that caused severe property losses.

ING Canada’s other three operating divisions reported “solid results,” Westfall said.

Its return on equity for the 12-month period ended June 30 slipped to 10.3 percent, from 18.3 percent a year earlier.

The combined ratio, which measures how much was spent on claims and expenses as a percentage of premiums earned, rose to 95.6 percent from 94.6 percent.

The company is 70 percent owned by Dutch financial services company ING Groep ING.AS and operates under the ING Insurance, belair direct and Grey Power banners.

($1=$1.07 Canadian)

Additional reporting by Ka Yan Ng; editing by Rob Wilson

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