Earnings go from bad to worse for Canada’s P&C insurance industry – Quarterly report

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November 29, 2002 TORONTO – It is definitely not business as usual for Canada’s property and casualty (P&C) insurance industry. In its quarterly report released today, the Insurance Bureau of Canada (IBC) states that “the current insurance market is very difficult.”

“Consumers are facing higher prices, changes in coverage, and the withdrawal of some insurance companies from certain markets,” says Paul Kovacs, IBC’s chief economist.

“Insurers are actively working to re-establish healthy earnings. 2001 was the worst year on record, but earnings fell 22 per cent during the first nine months of 2002, making a bad situation even worse,” Kovacs says.

The report indicates that higher prices and moderation in claims and expense growth will eventually provide the foundation for healthy insurance markets. The industry-combined ratio improved by two percentage points this year, as earned premium growth exceeded growth in claims and expenses. Industry underwriting losses fell by $.3 billion this year.

“Unfortunately, that improvement was more than offset by reduced investment income,” says Kovacs. “In the second and third quarters of 2002, industry investment income fell by $500 million. Although conservative investment practices moderated the impact, Canadian insurers suffered from the harmful impact of the decline in equity markets last year and again this year.”

The quarterly report also outlines regional differences in performance. Atlantic insurance markets have been deteriorating for more than a decade and are in urgent need of change. Quebec markets are the healthiest in Canada, while Ontario auto is now the weakest insurance market in Canada. There is hope in Ontario’s legislative reform with a promise that pressures driving up the costs of insurance may be contained. In Alberta, market results are poor, and the BC market remains largely closed to private auto insurers.

Industry premium and investment revenues will approach $30 billion this year while after-tax earnings through the first nine months of the year were less than $500 million. “Canada’s private insurers have made it a top priority to continue to address these unacceptably low returns,” Kovacs says.

“The P&C insurance industry has been left vulnerable after five consecutive years of rapid claims growth, volatile investment markets and poor earnings. It is not business as usual for insurance consumers and insurers. Additional, significant market adjustments are needed to re-establish healthy markets.”

Read the full issue of Perspective as a pdf (the file is large at 3 megabytes approx.).

The Insurance Bureau of Canada is the national trade association of the private property and casualty insurance industry. It represents some 200 companies that provide more than 90 per cent of the non-government home, car and business insurance in Canada. Visit the Web site at www.ibc.ca to view the latest edition of Perspective, news releases and other information.