AM Best is maintaining its stable outlook on what it sees as a “resilient” Canadian property and casualty (P&C) re/insurance sector, based on its strong underwriting performance and capitalisation, as well as the country’s relatively successful handling of the COVID-19 pandemic.
Canada’s GDP contracted by 5.4% last year but is expected to rebound substantially in 2021, with the IMF predicting growth of 6.3% for the year.
The country has one of the world’s highest rates of vaccination and pent-up consumer demands, border re-openings and growing business confidence are expected to be tailwinds for the economy.
However, the unpredictable nature of the pandemic still poses a risk and clouds the outlook for its insurance sector, with AM Best warning that a resurgence of the virus will undoubtedly dent activity but not the extent previously experienced.
Against this backdrop, the P&C re/insurance industry in Canada has maintained solid risk-adjusted capitalisation, and profitable operating performance, with improved underwriting results in 2020 following two breakeven years, despite the pandemic and growing market and weather-related pressures.
AM Best also pointed to advancing refinement and innovation in underwriting and distribution capabilities in response to competitive pressures and consumer evolution, as well as continued emphasis on and expansion of enterprise risk management (ERM) principles.
“Canada’s P/C insurers have shown that they have not only the capital, but also the agility and capabilities to meet these challenges head on,” AM Best stated. “Nevertheless, they will need to continue to evolve and adapt to changing market, weather and societal conditions, particularly those brought by COVID-19, over the near and longer-term.”
Earnings for the sector in 2020 were driven mainly by both growth in investment income and better underwriting performance, with the industry’s combined ratio improving by nearly four percentage points to 96.6%.
The industry’s premium base also grew by over 8% on a direct basis last year, following growth of over 10% in 2019.
