Toronto, ON (August 27, 2001) – Preliminary statistics about insurance market trends published by Statistics Canada are of poor quality and mislead the industry and regulators, according to the Insurance Bureau of Canada’s Perspective: A Quarterly Analysis of the Financial Performance of Canada’s P&C Insurance Industry.
“StatCan estimates about insurance are not credible,” says the report’s author, Insurance Bureau of Canada chief economist Paul Kovacs. “For example, last quarter preliminary IBC data indicated that the industry’s combined ratio increased to 112.6 and profits fell by 95 percent. StatCan estimated that the ratio fell to 105.4 and profits increased by 18 percent!”
IBC’s data is based on information provided directly to IBC by companies who account for 70 to 80 percent of industry premiums, while StatCan bases its figures on a sample of companies that account for 25 to 30 percent of industry premiums.
The IBC report indicates that the property and casualty insurance industry’s return on equity – after-tax profit calculated as a percentage of capital – over the past four quarters has fallen to 2.6 percent. This is the lowest rate in more than a generation.
“Three years of disappointing earnings in the insurance industry, have given way to almost no earnings at all. Industry after-tax profits of $269 million for the first half of 2001 were 70 percent lower than the $908 million in the same period last year”, says Kovacs. He predicts industry profitability will not be restored this year.
Poor underwriting results in the second quarter of 2001 were evident in most provinces and most lines of insurance. The healthiest market was found in Quebec, while results in the Atlantic provinces were the worst. The largest market – Ontario – remained weak.
Claims growth continued to surpass premium growth. An 8.6 percent increase in premiums – including a 15.2 percent increase in Ontario auto premiums – was outpaced by a 10.7 percent growth in claims during the same period, including a 25.5 percent increase in Ontario auto claims. The most significant increase was in insurers’ accident benefits and bodily injury costs associated with injuries suffered in motor vehicle wrecks.
The report also indicates that many businesses find Canada attractive because of its affluent consumers, well-educated workforce and an undervalued currency that is holding down many costs. However, the insurance industry is experiencing high corporate tax rates and a heavy regulatory burden which have driven some investors out of Canada and added to the cost of insurance.
Perspective, which is published four times a year, analyses the financial performance of Canada’s property and casualty insurance industry. The report is prepared by Paul Kovacs and Christy Gaetz, policy analyst, and is based on a survey of the member companies of the Insurance Bureau of Canada and data from IBC’s Insurance Information Division and A.M. Best Canada’s WinTRAC. The publication is available on the Insurance Bureau of Canada’s Web site at www.ibc.ca.
The Insurance Bureau of Canada is the national trade association of the private property and casualty insurance industry. It represents about 200 companies that provide more than 90 percent of non-government home, car and business insurance in Canada.
For more information, visit www.ibc.ca.