May 13, 2010 — The turmoil of the past couple years may have resulted in OSFI having a more banking, capital markets and systemic focus – but there are new and important developments that are centered on the Property and Casualty (P&C) industry, and that is what I want to talk about today.
When one looks at the end financial results for 2009 – compared to 2008 – there was little change.
- Net income – flat at $ 2 � billion
- ROE – relatively stable, but certainly not stellar, at 7 � per cent
- The combined operating ratio – absolutely no change at 100 per cent.
But like a seemingly tranquil duck paddling upstream, you do not have to look very deeply to determine that there has been a lot of activity going on just below the surface.
Overall, OSFI believes that 2010 will be a mixed bag for the P&C industry. Capital is strong, and has proven to be sufficient for the travails faced by the industry over the past few years – but the difficulties of years past are not behind the industry just yet.
Let me detail five of our current concerns:
- Low Interest Rates
- Ontario Auto
- Auto Liability Caps
- Personal Property Insurance Pricing
- Commercial Insurance Competition
P&C Risk Management
Canada and the P&C industry fared relatively well during the recent financial turmoil. While part of this success may be due to good risk management, we cannot rest on our laurels and we need to ensure that risk management practices continue to keep pace with business complexities. While other examples exist, let me suggest four areas where continued risk management focus is required by P&C companies:
- Price/Profit Instability
- Price Regulation
- Large, Unpredictable Risks
- Financial Risks
While the P&C industry has perhaps been ahead of the other sectors in the management of specific risks or perils (e.g. development for certain catastrophic models), it is fair to say that the establishment of Enterprise Risk Management (ERM) – and related processes to assess risk across the entire organization – have been slower to develop in the P&C industry.
For the full remarks, go here.
OSFI is an independent agency of the Government of Canada. It reports to the Minister of Finance. For more information visit www.osfi-bsif.gc.ca.