Canadian property and casualty industry over-capitalized and under-performing: Cook

Canadian property and casualty insurers’ over-capitalization and low return on investment mitigates against new capital being invested into the industry, said Philip Cook, CEO of Omega Insurance Holdings.

Cook spoke as a panel member at the Property and Casualty Underwriters’ Club (PCUC) luncheon in Toronto on May 18. The panel discussed the current global economy from an investor’s standpoint.

Despite the fact that Canada is well-regulated and fared better than its U.S. and European counterparts in the global economic recession, Canada just does not have a rate of return that would be appealing from an investment standpoint, Cook suggested.

“For example, in 2009, domestic property and casualty insurers had $60 billion of capital and its net income on that $60 billion was $2 billion,” Cook said, noting the rate of return on that would be 3.33%.

Similarly, property and casualty insurer branches in Canada had $24 billion of capital in 2009, with a final net income of $1 billion, forming a return rate of 4%.

“If you combine all of that, the industry-wide ROI is 3.5%,” he said. “A lot of excess capital and relatively small returns will mitigate against new capital coming into the P&C industry in Canada.”

He added that in 2009, the industry as a whole failed to make an underwriting profit. Instead, its profits came from investment income. “Which means that $84 billion could have been invested at 3.5% with no risk whatsoever elsewhere.”