Canadian Underwriter

2020 results: Did Canada’s insurers “outrun the bear” of claims inflation?

March 23, 2021   by David Gambrill

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Canada’s P&C insurance industry survived the pandemic year of 2020 in good financial health, although some insurers wound up with healthier balance sheets than others, according to financial data published in the forthcoming MSA Research Q4-2020 Outlook Report.

“The Canadian P&C industry emerged from 2020, an extraordinary year in all respects, with strong results and strengthened balance sheets,” MSA Research president and CEO Joel Baker observed in a statement announcing the results. “While not all carriers performed as well as others, generally speaking all boats were lifted. This is due to hard market conditions outpacing claims inflation.”

Key financial health metrics for the industry included a combined ratio of 94.57% in 2020, compared to 97.64% the year before. A 100% ratio is considered break-even; lower than that indicates underwriting profitability.

The industry’s return on equity (ROE) in 2020 reached 11.03%, which is a significant jump up from the industry ROE of 7.1% that member insurers of the Insurance Bureau of Canada (IBC) reported in 2019.

The industry’s net income grew by 54.73% last year, expanding from about $3.9 billion in 2019 to $6 billion in 2020.

On the claims side, the industry’s net loss ratio dropped 2.42 percentage points over last year (64.15% in 2020, compared to 66.57% in 2019).

The claims experience in 2020 wasn’t the same for all carriers, as Baker observed.

“Personal and multi-line carriers performed well despite offset lower auto losses with COVID relief via premium rebates and significant Cats (catastrophe events),” he said.

Baker described the top line growth of commercial insurers and reinsurers in 2020 as “outrunning the bear” of claims inflation.

“Commercial insurers exhibited very strong top-line growth of 18% as a result of firming rates,” Baker said. “Despite this, claims were up more than 17% — a bit like a hiker just outrunning a bear (or outrunning a buddy who is outrunning the bear).

“Reinsurers, too, saw hard market-driven growth of 21.8%. But astoundingly, this was overshadowed by a 43.3% jump in claims driven largely by Cats (the bear won in this case).”

In summary, Baker concluded, 2020 was a solid year for the industry. “Best for personal/multi-line carriers,” he said, “less so for commercial carriers and reinsurers.”


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