September 6, 2011 by Canadian Underwriter
A.M. Best is maintaining a stable outlook for the Canadian property and casualty industry based the industry’s strong risk-adjusted capitalization in 2010, stable investment income and the doubling of its comprehensive income between 2009 and 2010.
But significant challenges for the industry remain, including Ontario auto insurance fraud, the importance of insurance to value (ITV) following the wildfires in Slave Lake, Alberta and pricing adequacy in property lines (most notably commercial property).
A.M. Best’s outlook expresses a belief that the number of upgrades in the future for individual Canadian property and casualty insurers will be balanced with the number of downgrades. The ratings agency notes that over the past five years, a majority (85%) of its actions related to the Canadian property and casualty have been affirmations. As of June 30, 2011, 97% of rated P&C companies in Canada have secure ratings of B+ or higher and 84% of companies had Superior (A++/A+) or Excellent (A/A-) ratings.
A.M. Best noted that the Canadian P&C industry’s financial results improved modestly in 2010, as adjusted net income increased by 3.7% to $2.3 billion. Total comprehensive income rose to $3.3 billion.
In terms of challenges, A.M. Best expressed concerns about the ongoing efficacy of the Ontario auto reforms introduced in September 2010.
“A.M. Best remains concerned that pricing – with potential regulatory intervention if escalation [of rates] continues beyond regulators’ comfort levels – and reserving for these new coverages may challenge and negatively affect insurers’ future underwriting profitability,” A.M. Best says in its special report on the Canadian P&C and life insurance industries. “A.M. Best also remains particularly concerned with the level of auto insurance fraud in the system, and whether reforms will curb these dealings.”
Also, A.M. Best says the industry faces a number of ongoing challenges in property lines related to price adequacy, weather-related claims and scrutiny of insurance to value (ITV).
“Based on recent weather-related events and the Salve Lake fires [in 2011], A.M. Best anticipates slight deterioration in the 2011 property loss ratio,” the report says.