Despite the low interest rate environment and growing threat to Canadian re/insurers from severe weather events, A.M. Best’s outlook for the country’s property/casualty and life sectors remains stable as these well-capitalised firms show pricing discipline and solid earnings.
Possible earthquakes, economic volatility and regulatory changes are variables ahead of the industry that Canadian re/insurers are warned by A.M. Best to keep abreast of.
Raymond Thomson, associate director, A.M. Best, said; “Most Canadian P/C writers rated by A.M. Best maintain geographic spread at least through multiple provinces, as well as comprehensive catastrophe reinsurance programs.
“They have been able to absorb the Fort McMurray fire losses and other concentrated events without material impacts to their balance sheets.”
Wildfires struck again this summer in British Columbia, hitting an industry still feeling the impact of Fort McMurray; “In the case of Fort McMurray, reinsurers covered approximately 70% of insured losses, a figure in line with similar-sized events worldwide”, according to Greg Williams, senior director, A.M. Best.
Last year’s heavy losses caused an increase in the overall combined ratio for the Canadian P&C sector by 2.7 points to 98.2, the loss and Loss Adjustment Expense (LAE) ratio also rose by 2.4 points, and the underwriting expense ratio by 0.3 points.
A.M. Best said the rise in the expense ratio reflects investments to improve and upgrade policy administration and claims systems and increased efforts to leverage data analytics in the underwriting process.
However, A.M. Best, associate director, Ed Kohlberg, highlighted the competitive strengths of Canada’s life insurance industry – currently dominated by three main insurance groups who collectively boast a 63% market share in 2016 net premiums.
“Product pricing, while competitive, remains rational, with pricing actions noted in interest-sensitive and certain life insurance lines of business over the past few years,” said Kohlberg.
Most life companies successfully negotiated the market environment with pricing discipline and a focus on core lines of business.
Although re/insurers in Canada are advised to be prepared for potential shifting market dynamics, or the next Fort McMurray event – whose fires have only just been announced as fully extinguished, the rating agency’s stable outlook for the industry is based on “solid underwriting fundamentals, increased sales, less volatile investment performance and interest rate and equity market movements.”