Does size matter when determining survival of insurers during financial crisis?

When it comes to using a reliable indicator to figure out which Canadian P&C insurance company is best-positioned to survive the worst financial crisis to hit the North American markets since the Great Depression era, does size matter?
The answer, as expressed to brokers attending the 88th annual general meeting of the Insurance Brokers Association of Ontario (IBAO), depends on how big the insurance company is.
Smaller insurance companies represented at the IBAO’s annual CEO panel, as measured by direct premiums written, believed size doesn’t matter when determining solvency.
Just because an insurance company is large doesn’t mean it isn’t vulnerable, noted Kevin McNeil, the president and CEO of the Gore Mutual Insurance Company.
McNeil noted AIG, “the largest insurer in the world,” seemed an improbable candidate for bankruptcy, and yet it survived insolvency only thanks to a recent US$85-billion loan from the U.S. Federal Reserve.
“The question is going to be: Are there going to be any [more] casualties?'” McNeil noted. “And if you go to the newspapers or watch TV, you’ll hear a CEO of a major company stand up there and say, ‘My company’s fine, no problem, we’ll survive this, we’ll be okay.’ And then you hear two or three days or a week later that that company went bankrupt.”
So if public statements can’t be taken at face value, how does a broker know which of its insurance markets are strong and which are not?
McNeil told brokers attending the CEO panel that the best strategy for determining financial strength in these unpredictable times is to monitor, on a regular basis, the Minimum Capital Test (MCT) scores of Canadian P&C insurers.
Quarterly MCT scores are publicly available on the Web site of Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions.
Simply put, MCT scores are a measure of an insurers’ available capital divided by its minimum capital requirement. The answer is expressed as a percentage, and OSFI requires a property and casualty insurer to maintain a minimum MCT score of 150%.
Gore Mutual’s MCT score in 2008 Q2 (the latest available figures) was 278%, whereas the other companies represented on the panel had 2008 Q2 MCT scores of 207.55% (Dominion of Canada General Insurance Company), 184.83% (ING Insurance Company of Canada) and 181.71% (AXA Insurance Canada).
Not surprisingly, though, the largest companies represented on the panel (in terms of direct premium written) jumped in at McNeil’s remarks and reiterated that size does matter.
“I wanted to address the comment that Kevin made about having an MTC ratio that is significantly higher than any other company, which, if you look at it in analytical terms in Ontario it’s probably a Cdn$300-million requirement,” said ING Insurance president Derek Iles. “And, if I may be so bold to say, that would be a rounding error at ING.”