Where Intact CEO sees the hard market heading in 2023

Editor’s Note: This version corrects an earlier one in which it was suggested Intact CEO Charles Brindamour was predicting the beginning of a soft market cycle for the Canadian P&C industry, when in fact he was arguing the opposite (that hard market conditions would persist, because the industry is experiencing a number of “headwinds” that favour hard market conditions). Canadian Underwriter apologizes for the error and any misunderstandings or confusion this may have caused.

The P&C market is still hard, and Intact CEO Charles Brindamour sees a number of conditions supporting a hard market for the foreseeable future, he said during a fireside chat at the National Bank of Canada’s Financial Services Conference.

“If you look at the headwinds that the industry is battling to a certain extent…in aggregate, they’re generating a continuation of the hard market,” said Brindamour. And he expects these conditions (which include inflation, the cost of reinsurance and natural disasters) to continue for the foreseeable future.

Speaking to these factors supporting the persistence of the hard market, Brindamour noted signs of relief from high inflation are on the horizon. But it’s still not enough to say insurers are out of the woods.

“Inflation…is not [occurring] to the same degree [in] automobile insurance, but still you’re easily in the mid-single-digit zone, particularly in property,” he said. In personal auto, Intact’s rate increases are in the upper single-digit range.

“Bear in mind that there’s seasonality, especially in winter months,” said Brindamour of auto premiums. “But there are a number of moving pieces here that one needs to understand. We expect severity to abate as we’ve observed towards the end of 2022. We expect that to take place in 2023, and so far, so good.

“Indeed, with rates being written in the upper single digit range — obviously, we’re already sub-95 [combined ratio] in terms of run rate [which predicts future financial performance assuming current conditions remain the same] — so clearly with inflation abating, rates moving up, that gives us a good degree of confidence in the guidance.

“Frequency, or number of [auto] claims, is below what we’re pricing for at the moment,” said Brindamour. “Our guidance expects that frequency will move upward. That is, to a certain extent, if severity was not to abate at the speed we expect, we have a bit of a safeguard in terms of inflation.”

The cost of reinsurance is also contributing to hard market conditions for Canada’s P&C insurers, Brindamour said.

“[The cost of reinsurance] is really important in commercial lines for most players and is up 25+%. This happened overnight come January 1,” Brindamour said. “We anticipated that following last year’s July renewals for reinsurance. And I think the market is slowly starting to digest the fact that prices are up, and retentions are up meaningfully as well.”

Also, natural disasters have affected commercial lines as well as personal property lines. “Those three headwinds clearly will maintain a very healthy rate environment in commercial lines,” Brindamour predicted.

What are some of the markers the company reviews when assessing a potential change in the market cycle?

Industry profitability and new capital are starting to manifest themselves, he observed.

“Industry profitability [in Canada] has been pretty good, somewhat supported by lower frequency in automobile insurance,” he said. “A few years of strong profitability in the industry tends to be the leading indicator.”

New capital coming into the market could also point to signs of a cycle change.

“Surprisingly, there is new capital coming in in the market, particularly in distribution — in particular with MGAs — and that is something that could soften, to a certain extent, the hard market.”

Interest rates may also portend of a softening market.

“Many people say, ‘Well, interest rates are up, you’ve got more earnings power,’” Brindamour explained. “True statement, but even if, at the industry level, rates are up meaningfully, compared to, say, book yields, I don’t think that this is worth much more than maybe a point and a half of combined ratio.

“I think the headwinds [favouring a hard market] I’ve identified…are greater and, as a result, my expectation is that this [hard market cycle] will persist.”

For Intact, Brindamour anticipates a strong performance in the coming year.

“Our outperformance position is really good,” he said. “Our performance in commercial lines and in personal lines—but in particular in commercial lines—is very strong. A hard pricing environment with very strong outperformance coming in is, in my mind, an excellent position to be in.”

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