Canadian P&C market’s 2010 results begin to turn corner

Trends in the 2010 financial results of Canadian property and casualty insurers were “modestly positive,” showing marginal improvement over 2009, according to statistics released by the Insurance Bureau of Canada (IBC).
IBC reviewed the 2010 financial trends at the Swiss Re 2011 Canadian Insurance Outlook 26th Annual Breakfast meeting held in Toronto on Mar. 31, 2011.
But while underwriting results have generally improved, the industry as a whole posted its third straight underwriting loss, observed Gregor Robinson, senior vice president and chief economist at the IBC. And reserve releases in 2010 certainly added some blush to the 2010 underwriting results.
Robinson looked at some of the summary ratios of the industry in his presentation, and the ratios in 2010 were almost the same – albeit slightly improved in 2010 – in most major categories.
For example, the Canadian P&C insurers’ combined ratio – a measure of claims costs divided by premiums collected (numbers above 100% reflect a loss) – was 100.3% in 2010 compared to 100.8% in 2009.
Return on equity was 7.2% for both 2009 and 2010.
Capital increased slightly in 2010, with the industry’s overall Minimum Capital Test (MCT) score increasing from 233.2% in 2009 to 239.9% in 2010.
Robinson noted poor underwriting results posted by some “outlier” companies affected the industry’s earnings as a whole.
“It’s worth noting that had we removed a few ‘outlier’ companies whose results were far removed from the rest of the industry, the trends would have been quite different,” he said, including “an industry-wide combined ratio of 97.7% instead of 100.3%, a loss ratio of 66.6% instead of 69.8%, and a return on equity of 10.1% instead of 7.2%.”
Nevertheless, 2010 marked the third straight year of underwriting loss for the industry. “On the positive side, the [underwriting] loss was substantially smaller last year – $54 million, compared to a loss of $207 million in 2009,” Robinson noted. “The underwriting picture becomes less positive when we remove the effect of reserve adjustments.
“In 2010, there were net releases of prior-year reserves of about $1.2 billion. Removing these from the underwriting results shown [for 2010], the industry’s underwriting loss grows to $1.3 billion.”
Additionally, when the effect of reserve development is removed, the 2010 combined ratio increases by three percentage points, up to 103.6%