Moments In Time (August 01, 2004)

Could company failure lead to compulsory guaranty fund?

By William M. Wilson, president, Reed Stenhouse Companies

April, 1981

Most of you probably read in yesterday’s Globe and Mail that the Federal Department of Insurance has taken control of the Strathcona General Insurance Company and that the Department has reliable commitments from industry segments and other interested parties to keep the financially troubled commercial property and casualty insurance company running while it winds down its operations.

Those of you who read the article will know that we have been heavily involved in attempting to obtain commitments from insurance companies and brokerage firms to enable Strathcona to meet all its obligations to its policyholders. This has proved to be an extremely difficult task, which has been complicated by the absence of interest on the part of some of our very largest property and casualty insurers.

If we are not careful, we will find ourselves in the situation of the insurance industry in the United States, which has watched legislation evolve permitting the various State Insurance Commissions to assess underwriters $143 million between 1970 and 1977 to establish appropriate guaranty funds.

The state of the reinsurance market

By Angus Ross, Senior Vice-President, Reinsurance Management Company of Canada, Inc.

June, 1982

When I sat down to write this article, with mind as blank as the sheet of paper before me, the first thought that came into my head was to find an apt, descriptive word to define the state of the market. Before long a whole series suggested themselves to me. Some were descriptive but unprintable; many were printable but less descriptive. Among those that struck a more happy medium were such as “anarchy”, “confusion”, “pusillanimity”, “greed” and “stupidity”. I am quite sure that the reader will be able to find many more of his own choosing.

Although we could possibly find some degree of relief in the fact that Canada is merely one of many unprofitable sources, nevertheless the depth and duration of the low parts of the Canadian underwriting cycle must be a cause of grave concern to reinsurance underwriters seeking to make a reasonable rate of return for their investors. In the years 1961 to 1981 inclusive, the Canadian market as a whole has had eight profitable years totalling some $300 million of underwriting profit. Over the same period it has had 13 years of losses totalling in excess of $2.5 billion. When one considers that reinsurers normally fare a couple of points (at least) worse than insurers, it can be seen that Canada has not been a particularly fertile ground for reinsurance profits over the past two decades.

Improvement says it all!

By Ken MacLeod, Managing Editor

Statistical Issue, 1983

Mother Nature gave the beleaguered property-casualty insurance industry in Canada a helping hand last year. The mildest winter in decades in many parts of the country, and an absence of weather-related catastrophes, cut the underwriting loss of the primary markets from $833.6 million in 1981 to $447 million last year, and improvement of approximately 46 per cent.

Investment income of $930.4 million resulted in a pre tax operating profit for the same companies of $483.4 million.

The licensed reinsurance markets also improved their collective experience by cutting their 1981 underwriting loss of $109.5 million to $80.6 million, an improvement of 29 per cent. Investment income of approximately $131.6 million generated a pre tax bottom line of $51 million.

Substantial rate increases in the personal lines put into effect last year are reflected in the improved experience of the primary markets and it is interesting to speculate on what the results might have been if the industry had given commercial line rates a boost at the same time.

Top writers% of marketVolume (millions)

Royal Insurance5.61$403.5

The Co-operators5.49$394.7

Lloyd’s Non-Marine4.66$334.7

Commercial Union3.48$250.2

Allstate of Canada3.21$231.0

A mixture of optimism and concern

January, 1984

David Breckles, Vice President, American Re-Insurance Company: The very intense competition in Commercial Lines, the deterioration in Excess of Loss covers, especially Casualty, and the depressed Property and badly underpriced Casualty rates that characterized 1983 could continue into 1984. Unrealistically low prices, non-remittance of premiums due, under-reserving on the primary level and spiralling claims costs are creating a very difficult business environment. Indeed, we could have a disaster waiting in the wings.

J. Anthony Bridger, President, Ontario Risk & Insurance Management Society: Contrary to some market predictions, 1983 was a year of continuing low rates, especially in property insurance, almost to a point of concern to risk managers. We are acutely aware of the companies that have failed the past two years and this has led to emphasis on checking the financial stability of any company that we place business with.