Net income up, loss ratios down
Financial results for the Canadian property and casualty insurance sector improved during the first six months of 2012 improved over the same period in 2011, new figures from MSA Research Inc. show.
Net income increased 57.5% to $2.100 billion for the first half of 2012 compared with $1.333 billion in the first six months of 2011, notes a table in the MSA Quarterly Output Report Q2-2012. The figures exclude government insurers, Lloyd's and Genworth.
Comparing the first six months of 2011 to the same period in 2012, MSA information indicates net loss ratios decreased in three categories of insurers: personal and multi-line writers (excluding the Insurance Corporation of British Columbia, Manitoba Public Insurance and the Society of American Foresters) dropped from 70.28% to 60.63%; commercial lines writers (excluding Lloyd's) fell from 60.44% to 57.22%; and reinsurers decreased from 72.93% to 62.67%.
"Commercial lines writers continued to exhibit impressive bottom line numbers despite continued erosion in top line revenue," Joel Baker, president and CEO of MSA Research, wrote in the outlook. "The soft commercial market lives on."
In addition, underwriting income in the category of commercial lines writers (excluding Lloyd's) increased from $231.9 million in the first half of 2011 to $365.1 million for the first half of 2012. Net income, for its part, rose from $377.059 million to $518.487 million.
Partnering to kick cargo theft to curb
CargoNet and the National Equipment Register (NER) were recently launched to help Canadian insurers and policyholders combat cargo and heavy equipment theft, thereby mitigating associated losses along the entire supply chain.
"Cargo crimes affect the entire supply chain, from shippers, to insurers, to carriers, their employees and ultimately the end customer," says David Bradley, CEO of the Canadian Trucking Alliance, one industry partner with CargoNet and NER. The alliance noted in May 2011 that cargo theft - increasingly orchestrated by organized crime syndicates - is about $5 billion annually.
Developed by Verisk Crime Analytics, CargoNet and NER are supported by several Canadian insurers and fleets, as well as MSA Research Inc. CargoNet is already working with carriers and police departments in the United States.
"CargoNet and NER help prevent theft and improve recovery rates through secure information sharing and collaboration among theft victims, their business partners and law enforcement," Verisk reports.
Both offerings are based on secure national databases and information-sharing platforms managed by crime analysts and other experts. They also apply analytical tools to aggregate data to show and predict theft trends.
"The problem of equipment and cargo crime is getting worse and hurting the bottom lines of insurers and policyholders," says Greg St. Croix, senior vice president and national risk consulting practice leader at Marsh Canada.
Zurich Canada and CNA Canada have also joined the countrywide initiative. "We've been a long time supporter of NER and CargoNet in the United States, and are excited to join forces with them to prevent construction and cargo theft in Canada," says Gary Owcar, president and COO of CNA Canada.
P&C rates mostly flat for 2013
Willis Group Holdings predicts that property and casualty rates in 2013 will be mainly flat or decreasing with a few exceptions.
Marketplace Realities 2013, a new report from the global insurance broker, notes that 2012 has been a year of recovery for the p&c industry. But the economy, particularly low interest rates, continues to be the major barrier to growth.
"Abundant capacity, low underwriting losses and the lingering weak economy are creating a flat marketplace," notes a statement from Willis. While casualty, executive risks and several specialty lines will see small rate increases, buyers with non-catastrophe exposed risks will see decreases of between 5% and 10%.
Some key price predictions for 2013 include the following: Property - non-Cat risks, -5% to -10%; and Cat-exposed risks, flat; Casualty - general liability, +3% to +7.5%; umbrella, flat to +7.5%; excess, +2% to +15%; and Auto, +2% to +5%.
Concern that Ontario reforms now in limbo
Just how measures meant to reform Ontario's insurance industry will play out remains unclear following the resignation of Premier Dalton McGuinty and the proroguing of the provincial legislature.
With the proroguing of the legislature, any bills not yet passed into law will need to be introduced again. That means several initiatives, including efforts to fight auto insurance fraud, could be delayed.
Randy Carroll, CEO of the Insurance Brokers Association of Ontario, points out that the Steering Committee of the Ontario Auto Insurance Anti-Fraud Task Force has not yet submitted its final report. That report addresses, among other issues, regulation of health clinics and commercial providers of independent medical assessments, possibly expanding FSCO authority, controls on the delivery of accident benefits, and the possibility of protecting insurers from civil suits should they report suspicions of fraud to regulators or to police.
"We would be disappointed if we won't see the continued momentum necessary for the reforms on the auto insurance system," notes an email response from a spokesperson for the Insurance Bureau of Canada (IBC). "While some of the reforms could be handled through regulation, it is now very unlikely that these reforms will be delivered at this time."
Phil Howell, chief executive officer and superintendent of FSCO, offered some optimism while speaking at the IBC's 12th annual Regulatory Affairs Symposium in Toronto on October 24. "It's important to remember and understand that a lot of the work of reforms that are in progress don't actually require legislative authority," Howell said.
Citing proposed reforms around the definition of catastrophic impairment and the dispute resolution process, he said the regulation process "will continue," but emphasized that implementation will depend on approval from politicians.
With regard to the backlog, FSCO has announced as many as 2,000 files monthly will be handled by an alternative dispute resolution firm employing retired judges and lawyers. "The use of these external services will wipe out the backlog," Howell said. "How quickly this happens, depends on how willing all the participants are to step up.".
Risk management, performance linked
A new survey out of Europe indicates maturity of risk management processes is correlated with sustainable improvements in corporate performance.
Companies having the most advanced risk management showed the strongest level of growth for the past five years, as measured in terms of earnings before interest, taxes, depreciation and amortization (EPITDA), note findings from the 2012 Risk Management Benchmarking Survey of the Federation of European Risk Management Associations. The survey, conducted in collaboration with AXA Corporate Solutions and Ernst & Young, is based on 809 responses from risk and insurance managers in Europe who responded to an online questionnaire.
In all, 28% of companies with advanced risk management practices reported an EBITDA growth rate of more than 10% compared to 22% whose risk management was classed as mature, 15% for moderate and 16% for emerging. Among companies with an EBITDA growth rate of more than 20%, 74% have mature or advanced risk management practices.
In addition, 46% of respondents said top management wants more information on the risks and risk management of the business.
As well, 17% of polled companies said they are not looking generally to increase risk transfer, 32% want more robust insurance partners and 57% reported strengthening their loss prevention activities. .
Consideration of risk at all levels urged
The Government of Japan and the World Bank have called on national governments to foster a culture of prevention by integrating disaster risk management in development policy and investment programs.
Integrating risk management is meant to help accelerate efforts to manage growing disaster risks, notes a joint statement from the Japan government and the World Bank, released during the 2012 World Bank Group/International Monetary Fund (IMF) Annual Meetings from Oct. 9 and 10. Economic losses caused by natural hazards have more than tripled over the last three decades and amount to $3.5 trillion, the statement notes.
"No country can fully insulate itself from disaster risk, but every country can reduce its vulnerability," World Bank president Jim Yong Kim said in Sendai, the largest city in the Tohoku Region, which bore the brunt of the 2011 earthquake and tsunami.
Swiss Re reported in March that insured losses for the Japanese earthquake and tsunami was estimated at $35 billion.
"Better planning can help reduce damage, and loss of life, from disasters, and prevention can be far less costly than disaster relief and response," Kim said.