Insurers’ Fortunes Prosper in 2-Q

Canadian insurers saw net income for the second quarter of this year more than double to $1.241 billion compared with the $584 million profit made for the same period in 2003, according to industry financial data released by the Office of the Superintendent of Financial Institutions (OSFI). The latest reporting period produced an industry-wide return on equity (ROE) of about 26%, thus maintaining the strong earnings momentum which became apparent in the last quarter of 2003.

Much of the industry’s net earnings gain for the second quarter of this year resulted from a significant jump in underwriting profit to $800 million versus the $590 million disclosed for the first quarter of 2004, and the $9.4 million underwriting loss shown at the end of the second quarter of 2003. Insurers also saw a 9.5% year-on-year jump in total net investment income to $981 million for 2004’s second quarter. Investment income for the latest reporting period amounted to $735 million with realized gains clocking in at $278 million (2003 2-Q: $229 million).

The industry’s net written premiums for the second quarter of this year rose to $10.4 billion (2003 2-Q: $9 billion) with net earned premiums amounting to $9.7 billion (2003 2-Q: $8.3 billion). Premiums at both the written and earned level grew by 16% year-on-year.

In contrast, insurers’ claims costs for the second quarter of this year increased by a moderate 4% to $6.102 billion compared with the $5.874 billion disclosed for the same period a year ago. This saw the industry’s second quarter loss ratio drop to 63% against the 66% ratio shown at the end of the first quarter, and the 70.3% ratio reported 12 months ago. The combined ratio for the latest reporting period came in at 92.2% versus the 100%-plus ratio reported at the end of 2003’s second quarter. The Insurance Bureau of Canada’s (IBC) chief economist Jane Voll says insurers have arrived at a point in underwriting strength where the industry should enjoy a period of stability. “The risk of insolvency is lower than before.”