Canadian Underwriter

Canadian P&C market stable despite 2017 cat losses


September 6, 2018   by Allan Tong


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chart graph ratingStable. That sums up the performance of the Canadian P/C industry in the past year, as detailed at A.M. Best’s Market Briefing this week in Toronto.

“The stable outlook is supported by the consistent and solid level of risk-adjusted capitalization,” said Gordon McLean, senior financial analyst at A.M. Best. A robust Canadian economy growing at 3% helped and so did “profitable operating performance, despite ongoing challenges…in weather and competitive market pressures.”

Impacting underwriting results in 2017 were 15 natural catastrophes, including hail, flood and fire.

“There was no single Fort McMurray-type event,” said McLean, referring to the fires that wreaked nearly $4 billion in damage that the industry had to bear. Instead, there was “an accumulation of large losses at an increased frequency” in 2017 compared to the previous year. The biggest losses were a May flood in eastern Canada that caused $115 million in losses and another in August that cost $165 million.

The good news is that the loss ratio slipped by 1.6 points to 63.9—the second-lowest of the past five years. Also, no weather event in 2017 was severe enough to dip into insurers’ catastrophe reinsurance programs.

In 2017, P/C financial results remained strong, though flat on a pre-tax operating basis from 2016. Growth in net underwriting income drove earnings. The premium base continued to rise, growing 3.4% on a direct basis, although it declined 1.1% on a net basis.

In the auto market, total net premiums written fell by 5.2%. Auto liability decreased by 7.6%; auto personal accident dropped by 16.5%; but other auto increased 5.2%. Regulations and enforcement, strong competition and pricing metrics put pressure on this segment.

Meanwhile, the auto personal accident line reversed its decline of four years by improving nearly ten points in the loss and LAE ratio. The loss and LAE ratio of the other auto line also deteriorated (by nearly four points), making 2017 the fifth straight year of increases in loss and LAE ratios. Both lines are exposed to loss frequency from distracted driving and loss severity due to rising repair costs.

Property bounced back from a rough 2016, with the personal property loss and LAE ratio improving 1.2 points to 59.3, while the commercial property loss and LAE ratio improved 8.3 points to 66.3. Both lines have been benefitting from trends in enhanced risk management, underwriting changes in risk selection and pricing, rates, limits and deductibles.

More good news in property: the personal property premium rose 3.9%, and commercial property rose by 1.6%. The former has been outpacing the latter for the past five years.

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This story was originally published by Canadian Insurance Top Broker.


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