Insolvency risk rising in Canada’s P&C insurance industry

By Grant Kelly, Chief Economist and VP Financial Analysis & Regulatory Affairs, PACICC

Excerpted from Solvency Matters, a quarterly report on solvency issues affecting P&C insurers in Canada

Toronto, ON (June 24, 2019) – Insolvency risk, or the risk that an insurer becomes insolvent, has been rising in Canada’s property and casualty (P&C) insurance industry since 2015. One measure of insolvency risk is the percentage of companies within the industry that report losing money. In a competitive industry, there are always winners and losers.

Some insurers try new distribution strategies. Others employ different tools to underwrite. Ideas that work are rewarded. In 2015, 83.4 percent of companies that competed in the marketplace reported profits. However, in the first quarter of 2019, just 63.2 percent of insurers that competed in the marketplace reported profits. This is the lowest level of insurer profitability since 1990.

Profitable insurers use their earnings to strengthen their financial health and support growth. Trends in earnings are the primary indicator of future capital adequacy. When firms employ unsuccessful strategies and are not profitable, some have to alter their decisions if their owners wish to continue to put their capital at risk by remaining in the market.

Sustained, healthy earnings reduce the risk of insolvency, while repeated losses increase the risk of failure. Often, in a competitive market, it is not unusual for any single insurer to have a rough year. PACICC examined the profitability of every insurer over the past 21 quarters (five years and the first quarter of 2019). 166 insurers in our sample reported profits over this period. Their capital bases grew by 61.7 percent. The remaining 34 companies actively competing in the Canadian P&C insurance market reported operating losses over this period. On average, these companies reported losses equal to 47 percent of their capital base.

Thankfully, these losses have not yet translated into an insolvency. PACICC is in regular communication with Canada’s solvency regulators, and the capital ratios of the companies competing in the market remain strong. In fact, overall, the capital base of Canada’s insurance industry has never been larger. However, insolvencies don’t happen on average. They happento individual insurers. Current trands are troubling and will need to be watched closely.

Solvency Analysis

Canada’s P&C insurers reported a difficult first quarter of 2019, with total industry net income declining by 152.6% compared to the same period in 2018. Bad underwriting results were the key factor in the industry’s poor performance, with the reported underwriting loss growing from -$119 million in the first quarter of 2018 to -$756 million in 2019 – a -535.3% change. The lone saving grace for financial results in the quarter was a surge in net investment income, which grew by 119.0% compared to the results from one year ago. However, strong investment income was not enough to overcome the decline in underwriting results.

The worsening underwriting results were uniform across all of the industry’s major lines of coverage. There was little good news in these numbers. Auto insurers reported private passenger loss ratios higher than 90% in four provinces – Alberta, Ontario, New Brunswick,and Nova Scotia. Three Personal Property markets – Quebec, New Brunswick and Prince Edward Island – reported loss ratios higher than 85%. Seven Commercial Property markets reported loss ratios in excess of 90% – Nunavut, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick and Newfoundland and Labrador. Loss ratios at these levels over time increase the risk of insolvency and are simply not sustainable. These lines of business in these territories are draining the capital base of the insurers who choose to compete in these markets.


  • MCT – Minimum capital test: Ratio of total capital available to total capital required, as defined by the Office of the Superintendent of Financial Institutions [OSFI] and Autorité des marchés financiers [AMF]. (IntactFC)
  • DPW – Direct premiums written: The total amount of premiums for new and renewal policies written during a specific period, as determined in accordance with IFRS. (IntactFC)
  • BAAT – Branch adequacy of assets test: The BAAT ratio measures the adequacy of net assets available to meet the margin requirements. The BAAT ratio is defined as the net assets available divided by the minimum margin required, expressed as a percentage. (OSFI)

About the Author

Grant Kelly is the Chief Economist and Vice President of Financial Analysis & Regulatory Affairs at PACICC. He is an expert on Canada’s property and casualty (P&C) insurance industry, its solvency regulation, its financial analysis, and catastrophic risks.

Grant has more than 20 years of experience addressing ambiguity to produce tangible results in not-for-profit associations, specializing in policy development, government relations, and corporate communications. He is the published author of multiple studies on why insurers fail.


PACICC is the industry-funded, non-profit resolution authority for Canada’s Property and Casualty (P&C) insurance industry. PACICC’s mission is to protect eligible policyholders from undue financial loss in the event that a member insurer becomes insolvent. The Corporation works to minimize the costs of insurer insolvencies and seeks to maintain a high level of consumer and business confidence in Canada’s P&C insurance industry through the financial protection it provides to policyholders. for more information, visit

SOURCE: The Property and Casualty Insurance Compensation Corporation (PACICC)

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