Best’s Special Report: Canadian Property/Casualty and Life Sectors Remain Stable

Toronto. Canada’s property/casualty and life insurance sectors continue to demonstrate stable operating performance despite the potential market pressures brought on by growing weather and fire catastrophes and a persistently low interest rate environment, according to a new A.M. Best special report.The Best’s Special Report, titled, “Canadian Property/Casualty and Life Remain Stable as Economy Rebounds, While Housing Market Bears Watching,” notes that potential seismic events, economic volatility and regulatory changes also remain factors worth watching. The report was released in conjunction with A.M. Best’s 2017 Insurance Market Briefing – Canada event, scheduled for Wednesday, Sept. 6 in Toronto.
As Canadian P/C insurers tried to move beyond the 2016 Fort McMurray wildfire, the largest natural catastrophe in the country’s history, wildfires flared again this summer in British Columbia.“Most Canadian P/C writers rated by A.M. Best maintain geographic spread at least through multiple provinces, as well as comprehensive catastrophe reinsurance programs,” said Raymond Thomson, associate director, A.M. Best. “They have been able to absorb the Fort McMurray fire losses and other concentrated events without material impacts to their balance sheets.”In the case of Fort McMurray, reinsurers covered approximately 70% of insured losses, a figure in line with similar-sized events worldwide, according to Greg Williams, senior director, A.M. Best.The overall combined ratio for the Canadian P/C sector increased by 2.7 points in 2016 to 98.2. As would be expected in a year with heavy catastrophe losses, the loss and Loss Adjustment Expense (LAE) ratio also rose, by 2.4 points, and the underwriting expense ratio, by 0.3 points. The steady rise in the expense ratio over the last several years is partially reflective of ongoing investments to improve and upgrade policy administration and claims systems, as well as continued efforts to leverage data analytics in the underwriting process.Due to an increase in both the frequency and severity of natural catastrophe losses, pre-tax operating income declined 26.5% in 2016. The significant decline in underwriting profits resulting from catastrophic events was partially offset by additional investment income, which benefitted from an increase in investment yields. Realized capital gains dropped approximately 55% from the prior year, while net income was down approximately 30%.Despite the ongoing challenges of low interest rates, regulatory changes and limited domestic growth opportunities, the Canadian life industry remains well-capitalized, given the build-up in its equity. Most life companies maintained pricing discipline in their markets and stayed focused on growing their core lines of business. Earnings were strong and grew in 2016, on solid underwriting fundamentals, increased sales, less volatile investment performance and interest rate and equity market movements.“Canada’s life insurance industry remains very competitive and is dominated by the top three life insurance groups, which maintain a 63% market share as measured by net premiums written as of year-end 2016,” said Ed Kohlberg, associate director, A.M. Best. “Product pricing, while competitive, remains rational, with pricing actions noted in interest-sensitive and certain life insurance lines of business over the past few years.”