Canadian insurers’ earnings likely to diminish

While 2004 was the best year of the hard market cycle in terms of company financial returns, the year ahead will likely see deteriorating results as lower pricing and rising claims costs eat at the industry’s bottom-line, predicts George Cooke, president of the Dominion of Canada General Insurance Co. Speaking at an Insurance Brokers of Toronto Region (IBTR) seminar, Cooke expects the Canadian insurance industry’s financial return for the first quarter of this year will reflect the strong earnings growth seen in 2004, but that the result for the full 2005 financial year will show a significantly different picture.
Overall, the industry had a good opportunity in 2004 to correct its financial position, and the marketplace is now benefiting from declining premium rates, Cooke says. However, he believes that rates have bottomed out, "I believe that any expectations of [further] rate reductions in Ontario is a bit of a stretch". He also believes that the decline in claims frequency seen in the industry’s 2004 results is temporary and that costs will begin to rise again this year.
The expected above average growth in industry earnings for the first quarter of this year presents another challenge in potential negative media reports, Cooke observes. The release of companies’ financial returns will also likely correspond with reports compiled by the provincial regulators into broker remuneration disclosure and the overall market conduct of insurers. The timing of these releases could present the industry with a double blow against current efforts at repairing its public image, he warns. Insurers and brokers need to be prepared to deal with any criticism and ensure that any misconceptions concerning the industry’s profit growth, relative to its true financial picture, are responded to. "We need to stop apologizing for what we’ve [the industry] made [in earnings]We’re going to hit another [media] blip as the [first quarter company] results come out, and we should be prepared for this."
Furthermore, Cooke prompted brokers to fully participate in Ontario’s new "self regulated" voluntary disclosure requirements concerning commission earnings. "We have to make the Ontario voluntary disclosure approach work," he notes, if the industry is ward off unwanted legislative measures. Thus far, there has been a sense of "unity" and fairness in how the provincial regulators have handled the commission disclosure investigations, Cooke says, "without engaging in one-upmanship". He also does not believe that commission payments, or that insurers are finally making money, are issues of great concern to the public. "The public is not upset with us [the industry] for making money, what bothers them is when they think that they are being deceived," he adds.