DEFINITY FINANCIAL CORP. Sonnet Announces Withdrawal From Alberta Auto
Our Take: Neutral. Sonnet announced that it is exiting the Alberta auto
market. We are neutral on this development as we expect a small net
positive to earnings in the near term, but Sonnet will now be even more
dependent on Ontario auto to achieve its scale objectives.
Implications:
• Small impact to premiums written: Sonnet wrote $66MM of gross
premiums in Alberta auto over the last 12 months (as of Q1/24). This
represents roughly 3.5% of our 2024E personal auto gross written
premiums (GWP) and 1.5% of our total 2024E GWPs.
• No expected change to GWP guidance: Given that Sonnet’s Alberta
auto book was relatively small and already shrinking, we do not expect
any change to 2024 GWP guidance. Management guidance is for upper-
single digit to 10% GWP growth (Q1/24 GWP growth was 12.8%).
• Positive net impact to earnings. Given the decision to exit Alberta
auto, we have to assume that this book of business was not profitable
and had no line of sight towards profitability. Accordingly, we believe the
exit will be a small net positive to earnings.
• No impact to brokered auto business in Alberta: We expect
underwriting to continue through broker channels in Alberta auto,
representing roughly 7% of DFY’s total personal auto GWPs. We believe
the brokered Alberta auto business is profitable.
Details: Sonnet Insurance Company ("Sonnet") announced today that it will
phase out its auto insurance operations in Alberta. Sonnet intends to
withdraw from personal auto in Alberta effective December 13, 2024. Sonnet
will no longer issue new or renewal auto insurance policies in Alberta.
Limited opportunities for profitability in the current operating environment was
cited as the reason for Sonnet exiting Alberta auto. Sonnet home insurance
will continue to operate in Alberta