Market stable, despite difficult year: A.M. Best

Despite a decline in capitalization, uncertainty over regulatory reform and increased cost pressures, A.M. Best analysts believe that the overall outlook for the Canadian P&C market is “ “stable.”

In the rating company’s latest report, analysts predict that the strength of the industry’s past financial results will help the sector weather the current economic storm.

The report notes that while the industry remained profitable in 2008, it was not completely spared from the financial turmoil. The economic crisis led to weak investment results, and the industry lost money from its underwriting operations for the first time since 2002.

The outcome was a decline in overall capitalization, and preliminary 2009 reports suggest that earnings and capitalization are still under pressure.

The reports also anticipates continued challenges for the P&C industry, predicting that it will take several months for the industry to adjust to the new Ontario regulatory changes due to be introduced in 2009.

A.M. Best also noted that personal auto and property losses are resulting in higher claims costs and lower excess capita levels, which in turn are beginning to force rate increases.

Life insurers experienced a modest 3% premium growth in 2008 and spent the year trying to maintain their financial strength while “de-risking” their product portfolios.

On the positive side, the report pointed out that the global financial markets have improved significantly since March 2009, an improvement that bodes well for future investment results.

Most importantly, the report stressed that one difficult year should not overshadow a steady pattern of strong and consistent performance.

“It is important to note that before 2008, the Canadian P&C market posted extremely favorable results, making a comparison on a year-over-year basis somewhat distorted,” write report authors. “The industry is expected to remain well capitalized and continue to produce positive earnings in the near term.”

To read the full report go online to A.M. Best’s website.

This story was originally published by Canadian Insurance Top Broker.