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Combined ratio for Canadian insurance industry in Q1 2017 estimated at 101.3%, up from 94.7% in Q1 2016: Baker


May 24, 2017   by Jason Contant, Online Editor


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The insurance industry in Canada saw a 6.6% hike in the combined operating ratio for the first quarter of 2017, from 94.7% in Q1 2016 to 101.3% in the first three months of this year, MSA Research Inc. president and CEO Joel Baker said on Wednesday.

Baker released the “sneak preview” of Q1 2017 results at a session titled Review of Industry Results and Outlook at the eight annual Canadian Insurance Financial Forum (CIFF), held at the Metro Toronto Convention Centre.

Regarding private passenger auto loss ratios in the first quarter of 2017, “it looks pretty alarming,” Baker told conference delegates. The loss ratio for Newfoundland was 95%, Nova Scotia 88%, New Brunswick 88%, Ontario 81%, Alberta 84% and Prince Edward Island at 62%. “Overall, Canada is 82 on auto, which is pretty scary,” Baker said.

From a catastrophe standpoint, the first quarter of 2017 saw two cats (costs of more than $25 million for the industry): a windstorm in Ontario from March 3-8 and a windstorm in Newfoundland and Labrador on March 11. The quarter also saw one notable event (NE), which cost the industry between $10 million and $25 million: an Atlantic ice storm from Jan. 24 to Feb. 1. This compares to the first quarter of 2016, which had two NEs and one cat.

Overall, the industry’s loss ratio was up to 68.5% from 62.9% one year ago. Direct premiums written were up 2.9%, but net premiums written were down 0.7%, “I presume as a part of the increase in reinsurance costs,” Baker said. Investment income was up 40%, but net income was down 20%.

Floods also factored into Canada’s “soggy spring,” Baker told conference attendees. From April 5 to 7, there was a southern Ontario and Quebec windstorm (cat); an NE in Dundas, Ont. on April 20; “sizable” flooding in Gatineau, Que. on May 9 (cat); and flooding in Kelowna, B.C. from May 5 to 11 (NE).

Related: Canadian industry underwriting income down 81% in 2016: MSA

“In conclusion, not a great start to 2017,” Baker said. “The floods and cats are top of mind.”

From 2008 to the present time, there were 83 flood events across Canada, including 39 cats and 44 NEs, Baker reported, for a total estimated industry loss of $7 billion. “This could include wind damage, it could include hail, but flood was a major component of each one of these events,” Baker explained, adding that totals about $800 million a year on average for flood in Canada during that period.

During his presentation, Baker also recapped the 2016 industry results, which saw a combined ratio for the industry of 99% compared to 94% in 2016 and a return on equity halved to 4.9 from 11.6 in 2015. Personal and multi-line companies saw a combined ratio of 99% in 2016 compared to 97% in 2015. Commercial lines companies’ results stayed flat, with a combined ratio of 97.7% in 2016 compared to 97.4% in 2015, while the combined ratio for reinsurers was 103% last year, up drastically from 73% in 2015. “This is also a test to the retro market and to the fact that lots of Fort Mac losses went outside Canada – Bermuda and the global reinsurance market,” Baker suggested. “So kind of a write-off of the reinsurance industry in 2016.”

Gross claims in 2016 were up $8 billion from 2015 to $43.4 billion, with reinsurance ceded up $5 billion to $11.6 billion.