Canadian P&C insurers’ profits predicted to fall Cdn$1 billion between 2006 and 2007

Pricing and claims trends in Canadas property and casualty industry over the past year suggest Canadian insurers will see a Cdn$1-billion drop in net income between 2006 and 2007, according to KPMG senior manager Blair Manktelow.
Speaking at KPMGs 16th annual insurance conference in Toronto, Manktelow predicted Canadian insurers would collectively bring in a 2007 net income of about Cdn$4 billion, compared with a 2006 net income of Cdn$5 billion.
Manktelow, who said he spoke for himself and not for KPMG, predicted the market might further deteriorate in 2008, with a projected total net profit of Cdn$3.5 billion.
He qualified that his 2008 estimate was much more uncertain than his 2007 projection, because as projections go out further in the future, it is more difficult to gauge the financial variables that may be in play.
But overall, the industrys profits are starting to trend downwards, said Manktelow. He attributed the deteriorating profit margins in part to what is happening in Ontarios auto lines sector i.e. higher claims costs for bodily injuries, disability injuries and medical rehabilitation and the level of competition currently existing in commercial lines.
Manktelows slide presentation featured a graph projecting a slight rise in incurred Ontario private passenger auto claims from 2007-08, as well as a continuing, mild increase in the Ontario auto lines loss ratio.
A graph showing the financial fortunes of Canadas commercial property lines indicated loss ratios and net incurred claims in this sector falling sharply between 2005-06 (keeping in mind the large damage losses incurred in 2005). At the same time, net incurred claims in commercial lines remain as high as they have been since 1986.
And yet, Manktelow noted, citing Financial Services Commission of Ontario (FSCO) statistics, insurers have not yet increased their rates in response to these trends. I think that this is going to be a pretty big issue (going forward in 2008), and that the companies are going to have to react to the trends going on, he said.