OLDWICK, N.J., JULY 26, 2004
As 2002 fades from memory as the worst performance year by the Canadian property and casualty insurance industry, 2003, on the other hand, will be remembered for the industry’s return to underwriting profitability and strong earnings, according to a statistical study from A.M. Best Company.
The hard market’s higher rates drove much of the improvement, but it was also the industry’s ongoing efforts to return to business basics (i.e., sound underwriting guidelines, more conservative claims practices and attention to expense management). Collectively, these factors provided the groundwork for this improvement.
The overall industry, excluding Insurance Corporation of British Columbia (ICBC), generated an underwriting ratio of 98.4 and an improved return on equity (ROE) of 12.4%. Underwriting profit for the year totaled $524 million.
The top 25 companies as ranked by direct premiums written generated an even better ROE of 12.9% but modestly trailed in underwriting performance, earning an underwriting ratio of 99.6.
Further boosting industry underwriting earnings were favorable investment income and strong capital gains, which together increased by more than 30% over 2002.
The industry generated these positive results despite shouldering the costs of the British Columbia fires, which were among the largest catastrophes in industry history, costing CAD 250 million; losses from the Facility Association, a residual market, totaling CAD 500 million; and losses from Hurricane Juan of CAD 113 million, among others.
Auto, particularly in Ontario, remains a drag on the overall industry’s performance, with no real relief in sight. Mandated rate freezes and rollbacks in various jurisdictions will further challenge the industry as associated soft-tissue claims continue to rise, with very little or no cost containment in place or at least time tested to work.
Of the top 25 writers, State Farm Mutual and Kingsway General again lag well behind the industry’s favorable turnaround. These companies–to a degree–exemplify the loss-cost problems and lack of legislative remedy inherent in many provincial auto markets.
Unfortunately, on the heels of improving times, the soft market is lurking off to the side, making its presence known most notably in the commercial property market, where rates are softening.
The big question looming is how long can the industry maintain the positive momentum and underwriting discipline without falling into a competition for market share?
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A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance rating and information source.