Canada’s insurance market has Cdn$11 billion in excess capital

Canada’s insurance market has Cdn$11 billion in excess capacity, enough to underwrite another replica of Canada, which could fuel a soft market well into 2012.
Joel Baker, president of MSA Research, made the above observation and prediction as a panelist at the Standard & Poor’s June 24 panel discussion, “Canadian P&C Insurance SectorWhat The Future May Bring.”
His fellow panelist, Bruce Thompson, the director of the monitoring and analytics and support division of the Office of the Superintendent of Financial Institutions (OSFI), said he didn’t want to comment on Baker’s Cdn$11 billion figure. He did agree the Canadian insurance industry is “very well capitalized.”
Thompson cautioned that Canada’s solvency regulator isn’t necessarily concerned about the excess of capital, per se. “Good, solid, stable earnings, in my opinion, far outweigh the level of capital, after you have a certain amount, of course,” he said. “Capital exists for companies in the case of uncertainty or mistakes, in the absence of perfect certainty and we all live in those days.”
Baker noted the current soft market has been driven to a large degree by rate cutting in the commercial lines, which started to soften in 2002-03.
“At that time, people still blissfully [referred to] the soft landing [from the hard market of the early 2000s], as you might recall,” Baker said. “So maybe the landing was soft, but the plane kept rolling down the runway, and went off of the tarmac and into the trees.” Baker noted there is intense price competition happening in commercial lines, and rate reductions in the personal lines are reaching a critical mass.
“Results have been good so far in the claims department, and I think that’s dumb luck,” Baker said.