Industry could see more M&A activity

The Canadian insurance industry could see more merger and acquisition activity in 2013, in part because of continuing low investment returns, suggests a new outlook report from Aon Risk Solutions.

Overall, the market will remain stable in 2013, and insurers are expected to continue showing underwriting discipline this year, notes the company’s 2013 Canadian Insurance Market Report. However, the current low interest rate environment, which looks set to continue at least in the short term, means insurers must find “better ways to invest and deploy capital,” which could lead to more M&A activity this year, says the report, which provides breakdowns of pricing, coverage and capacity provincially and by several markets.

Last year also saw a moderately low level of natural catastrophes, apart from Hurricane Sandy, from which loss figures aren’t yet finalized. That has allowed the Canadian market to have strong capital levels, the report notes.

Regulation requirements going forward will also be a key issue this year, Aon says. “In addition to potential impacts of Solvency II regulation, Canada’s federal insurance regulator, the Office of the Superintendent of Financial Institutions (OSFI), is proposing guidelines that will impact capital assessments as well as the probable maximum loss (PML) calculations for earthquake exposures,” the report notes. These changes will significantly reduce property capacity available for policyholders’ risks, particularly in British Columbia.”