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Canadian P&C market “nowhere close” to hardening: analyst


January 13, 2011   by Canadian Underwriter


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The Canadian P&C industry is not even on the cusp of a hard market, despite analysts’ predictions, said Philip Cook, CEO of Omega General Insurance Holdings.
Cook offered his projections for 2011 at the Insurance Institute’s ‘Annual Industry Trends Breakfast’ breakfast in Toronto on Jan. 13.
Hard markets are typically categorized by an increase in profitability coinciding with a decrease in capacity, he said.
“You would say that’s counter-intuitive, but it isn’t. A majority of companies rely on commodity products, and if you’re in a commodity business and rates go up, then you can make a good rate of return without a whole lot of extra investment. You can just ride up on your commodity business,” Cook said.
“What tends to happen in a hardening market is there is a decrease in capacity for specialty or complex lines of business. Insurers tend to try and fill their hats with the commodity business and back away from some of the business that they picked up during the soft market.”
Based on the above definition, the Canadian market is “nowhere close” to a hard market, he said.
Since 1975, there have been three significant market cycles, Cook said. Hard markets existed between 1975 and 1978, 1984 and 1987 and from 2001 to 2004.
“You’ll note that each of these hard markets lasted for three years,” he said. “Between the first and second hard markets, there were nine years. Between the second and the third, there were 16 years.
“If you assume 2010 was the first year of the hard market, then we would be in the second year [of a hard market in 2011] with one more to go. That’s clearly not the case.
“It would also be unusual to have another hard market so quickly, because it’s only been six years since the last one.”
Although Cook predicted the current market is nowhere near hardening, he did suggest the industry may see some pricing corrections in certain lines of business.


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