ICBC posts first quarter financial results and releases Q1 COVID-19 report
September 10, 2020
ICBC's corporate net income for the first quarter ended June 30, 2020, was $311 million, of which $300 million was attributed to ICBC and $11 million was attributed to non-controlling interest.*
A positive net income for Q1 is notable after ICBC posted a net loss of $376 million at the end of its last fiscal year (April 1, 2019 – March 31, 2020). Much of that loss was attributed to the negative impact of the COVID-19 pandemic on global markets during the final two weeks of March, which significantly affected ICBC's investment portfolio.
Keeping in mind that this is only the first quarter of its current fiscal year and there is continued uncertainty around the COVID-19 pandemic and other risks, ICBC is cautiously optimistic about the months ahead.
However, the significant turn around and the continued uncertainty caused by the COVID-19 pandemic helps demonstrate how dramatically the financial picture can change in a quarter and why there is a need to evaluate the entire fiscal year before making decisions on any potential surplus at year end.
During most of Q1, the province was in Phases 1 and 2 of BC's Restart Plan. People were encouraged to stay close to home and avoid travel between communities unless essential. This resulted in fewer vehicles on BC roads, leading to fewer crashes and fewer claims filed by ICBC customers, resulting in a favourable impact on current year claims costs.
BC entered Phase 3 of its Restart Plan near the end of Q1 in late June. As more people returned to traveling on BC roads, ICBC does not expect the same reduction in claims costs in its second quarter.
While ICBC took in lower premium revenue from fewer customers purchasing or renewing policies, and more customers cancelling their policies or reducing insurance coverage during the more restrictive phases of BC's restart plan in Q1, the impact of these changes were offset by the reduction in claims costs during this period.
ICBC's equity investments have rebounded after a significant drop at the end of fiscal 2019/20 in mid-March due to the downturn in global markets driven by the COVID-19 pandemic. Lower interest rates during this time led to the realization of bond gains through trading activities. Those factors, along with the disposition of investment properties, resulted in higher investment income in Q1 this fiscal year compared to last year.
The positive bottom line result of $311 million net income and the improvement in the investment markets have improved ICBC's equity on the statement of financial position by $1 billion; turning from a $0.5 billion deficit position at 2019/20 fiscal year-end to a $0.5 billion surplus position at the end of Q1 fiscal 2020/21.
Moving forward, there is continued uncertainty around investment markets and so it is not clear what ICBC's investment income will look like in future quarters. The corporation does, however, continue to closely monitor and manage its investments prudently.
There continues to be underlying risks to ICBC's financial situation. The April 2019 product reform that introduced a limit on pain and suffering payouts for minor injuries and expanded the scope of the Civil Resolution Tribunal for certain ICBC claim disputes has reduced claims costs and helped stabilize the system. However, claims from crashes that occurred before the reform continue to be a concern. ICBC has roughly $12 billion in open claims subject to the pre-reform rules.
ICBC is keeping a close eye on the constitutional challenge currently before the BC Supreme Court contesting the April 2019 product reform. Should the plaintiffs be successful, the negative financial impact to ICBC's bottom line will be significant.
ICBC is also still recovering from the recent consecutive years of net losses of more than a billion dollars. While its capital levels have been severely depleted, a positive net income for Q1 represents a step in the right direction that ICBC hopes to build on over the remainder of the fiscal year.
More information on the impact of the COVID-19 pandemic on ICBC and its customers is available in ICBC's Q1 COVID-19 report.