2007 trends paint grim picture for next three years

Extrapolating 2007 financial trends forward three years presents two grim scenarios, especially one in which a major catastrophe strikes.
Jane Voll, Insurance Bureau of Canada’s chief economist and VP policy, presented two scenarios to people attending Swiss Re’s Canadian Insurance Outlook breakfast, one of which included a major, Cdn$1.5-billion catastrophe.
The first scenario assumes a catastrophe-free period resembling 2006.
“For the sake of argument, let’s say that we continue to enjoy the 2007 level of disasters,” Voll speculated. “In case you are wondering, if we continue 2007’s trend of deterioration of premiums and claims, by 2010 we would see a 5% deterioration in the combined ratio (from 93.7% in 2007 to 98.4% in 2010). The ROE would fall from 14.5% in 2007 to 11.1% in 2010.”
In Scenario 2, Voll again extrapolated from the 2007 results, but this time considered the effects of a theoretical, Cdn$1.5-billion cat in 2008, plus average losses of $500 million in both 2009 and 2010.
“For Scenario 2,we get very close to 100% by 2010 on the combined ratio, losing a lot of money. And ROE would fall something in the range of 5%,” she continued.
“We’re on a very slippery slope, and what will happen in 2008 is anyone’s guess. I don’t know if I’ve offered any bright lights in this picture, and if I have I’m sure that it’s the lights of an oncoming train.”