Insurers’ investment performance plummets in 3-Q

Canadian insurers brought home a record-low ROE of 1.8% for the first nine months of this year against the 7.4% return made over the same period in 2000, according to latest Insurance Bureau of Canada (IBC) financial data.
Net income for the latest quarter fell by 46.7% to $165 million compared with the $310 million made at the end of September 2000. Net written premiums rose by 10.4% for the quarter to $5.7 billion (September 2000: $5.2 billion) while earned premiums produced a more modest gain of 7.4% to $5.3 billion. The growth in earned premiums was outstripped by an 8% rise in claims costs that jumped to $4 billion. Growth in the cost of claims for the nine months of this year rose by 12.3% to $12 billion (September 2000: $10.6 billion).
Plummeting equity values and declining interest rates played a significant role in the industry’s latest return, observes Paul Kovacs, chief economist of the IBC. This has been particularly the case after the September 11 terrorist attacks. Investment income before realized gains rose by a meager 1.8% for the third quarter of this year to $573 million (September 2000: $562 million) while investment performance for the full nine months declined by 1.4% to $1.63 billion (September 2000: $1.65 billion). Realized gains also suffered in the third quarter, clocking in 46.3% lower at $160 million (September 2000: $298 million), while gains for the nine months dropped by 63.3% to $449 million compared with the $1.2 billion reported at the end of September 2000.
The industry’s underwriting loss for the latest quarter rose by 11.6% to $465 million compared with a loss of $417 million reported at the end of September 2000. The underwriting loss for the full nine months of this year jumped a staggering 46% to $1.3 billion (September 2000: $883 million). The combined ratio for the 2001 third quarter increased to 109.2% from the 108.8% recorded at the end of September last year.
Atlantic Canada and Ontario generated the highest underwriting costs, Kovacs says. "The industry is experiencing very large losses in Atlantic Canada. Premiums in Ontario have not kept pace with alarming and persistent cost increases, particularly for auto insurance. Quebec is the healthiest insurance market in the country. Nevertheless, a foundation is emerging for improvement. Recent [price] adjustments have been larger and came somewhat sooner than expected. This may become the hardest market since the liability crisis 17 years ago."