TD Bank to Take Quarterly Charge for Weather-Related Claims

Toronto-Dominion Bank, Canada’s second-largest lender, expects a third-quarter loss in its insurance division of as much as C$290 million ($282.6 million) due to severe weather claims.

TD will take a charge of about C$418 million, or 45 cents a share, for flood-related costs in Alberta and Toronto and increased general insurance claims, the Toronto-based lender said today in a statement.

There will be a “modest decline” in insurance earnings from the 2012 level of C$600 million, TD said in the statement. Without the charges, third-quarter insurance earnings were expected to be C$130 million to C$180 million, the bank said.

“We think this is a good business,” Chief Executive Officer Ed Clark, 65, said in a conference call. “But is it absolutely essential to our franchise? Probably not. Are we a better bank because we have this? Yes.”

TD slipped 1.9 percent to C$87.22 at 4 p.m. in Toronto, the most in 13 months. The shares have advanced 4.1 percent this year, the third-best performer on the eight-company Standard & Poor’s/TSX Commercial Banks Index.

The flooding in Alberta on June 20 and in Toronto on July 8 will have an impact of C$125 million after reinsurance from car, home, and evacuation claims. TD also set aside C$93 million to cover loan losses in its real estate portfolio and about C$292 million in claims reserves for its general insurance business.

‘Significant Challenges’

“We did not expect these charges to be as large,” Andre-Philippe Hardy, an analyst at RBC Capital Markets, said in a note to clients. TD Bank relies on its insurance unit for 8 percent of total earnings, he said.

The insurance industry in Canada is facing “significant challenges” from catastrophic events related to weather change and fraudulent auto insurance claims in Ontario, Clark said. TD will make “tweaks” to its property and casualty underwriting rather than exiting the business, he said.

All of the banks will report some negative impact from this summer’s severe weather, Robert Sedran, an analyst at CIBC World Markets in Toronto, said in a note to clients. TD has the largest exposure to the auto insurance market so other lenders will face limited expenses for those products, he said.

Ontario reformed insurance regulations to offer drivers basic auto insurance to help lower premiums in 2009.

The RBC insurance unit’s losses from flooding in Alberta and Ontario are “not material,” Tanis Feasby, spokeswoman for the lender, said in an email statement.

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