Recently, The Toronto-Dominion Bank (TD) provided a financial update and earnings guidance for third-quarter 2013. Among others, the company expects to report a third-quarter net loss in its insurance business.
Toronto-Dominion is scheduled to declare its third-quarter 2013 results on Aug 29, 2013. The company has projected third-quarter after tax net loss in the range of $240–$290 million in its Wealth and Insurance segment. Owing to this, the company is expected to bear an impact of about $418 million (after tax) or 45 cents per share on its overall earnings.
Moreover, excluding the above mentioned impact, Toronto-Dominion expects third-quarter 2013 earnings in the insurance business to range from $130–$180 million (after tax).
The expenses anticipated to be borne by the Wealth and Insurance segment are related to the adverse weather conditions experienced in southern Alberta on Jun 20, 2013 and the Greater Toronto Area (GTA) on Jul 8, 2013 that resulted in mass evacuation as well as severe damage to home and automobiles. This would result in a pre-tax impact of about $170 million after reinsurance or after tax impact of $125 million due to insurance claims.
Additionally, due to the Alberta flood in the third quarter of 2013, the bank would consider a pre-tax provision of up to $125 million or $93 million (after tax). This would reflect loan losses incurred by the company in the real estate secured lending portfolio.
Moreover, in the past few years, TD Insurance experienced uncertainty related to automobile insurance reforms. An increase in the number of third-party bodily injury claims in 2012 forced the company to increase its fourth-quarter 2012 insurance reserves.
Further, the data from this year’s claims development has forced TD Insurance to include an additional pre-tax provision of about $395 million and after-tax provision of about $292 million to increase reserves for claims for its General Insurance business.
Given the continuous rise in litigation charges mainly in urban areas including Toronto and fraudulent claims related to accident benefit claims in Ontario, TD Insurance continues to re-assess and raise the projected loss rates for prior claim years while determining claim reserves.
Moreover, Toronto-Dominion expects a moderate decrease in insurance earnings in the near term compared with the 2012 levels.
Our Viewpoint
Although, Toronto-Dominion expects to incur losses in third-quarter 2013, the acquisition activities are expected to positively impact its financials in the long run. Further, the company’s consistent capital deployment activities are expected to boost investors’ confidence. However, the persistently low interest rate environment, slow economic recovery and stringent regulatory requirements remain concerns.
Toronto-Dominion currently carries a Zacks Rank #3 (Hold). Some banks that are worth a look include BBVA Banco Franc (BFR) and Sumitomo Mitsui Financial Group Inc. (SMFG) with a Zacks Rank #1 (Strong Buy) and The Bank of Nova Scotia (BNS) with a Zacks Rank #2 (Buy).
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