How A.M. Best predicts pandemic could affect the Canadian P&C industry

An increase of residential cooking fires and business closures arising from the pandemic are among the trends affecting the Canadian property and casualty insurance industry on the radar of A.M. Best Company Inc.

Overall, personal property losses are lower so far in 2020, A.M. Best suggested in COVID-19 Taking Its Toll on Canada’s Economy and Insurance Industry, a report released Tuesday by the Oldwick, N.J.-based financial ratings firm. But more residential fires are being reported, as more cooking is being done at home, the company reported.

For commercial property, the pandemic could have an adverse effect on claims severity. “If a business is closed because of the pandemic, theft and structural damage may not be discovered as quickly.”

After COVID-19 was declared a pandemic this past March, the Canadian provinces took a variety of measures to reduce the risk of transmission, including ordering the closures of entire classes of workplaces. The pandemic could cause commercial property premiums to drop, A.M. Best warned Tuesday.

“As businesses either fail or decide to discontinue commercial coverage, and individuals facing financial hardship become unable to pay their premiums, insurers’ profitability could be at risk.”

The Canadian P&C industry had an underwriting loss in 2019, for the second year in a row, A.M. Best said in its report on the Canadian industry, which was released Tuesday.  The combined ratio for the Canadian industry was 100.3% in 2019, a 0.9-point improvement from 101.4% in 2018. The three years prior were profitable, with combined ratios of 95.4%, 98.1% and 97.1% respectively in 2015, 2016 and 2017.

“Despite the smaller impact of larger weather events in 2019, recent years have seen an increase in the frequency and a widening of the geographic spread of catastrophic weather events,” A.M. Best reported.

Last year, Canada saw 11 catastrophic events with a grand total of $1.3 billion in losses. The largest industry-wide loss of 2019 was a wind and flood events in southeastern Canada, in April/May in Quebec, Ontario, and New Brunswick, with about $270 million in losses.

“In most cases, no individual event was severe enough to reach into insurers’ catastrophe reinsurance programs, so losses were mostly absorbed into insurers’ bottom lines.”

Net premiums written for the industry grew 2.5%, from $43.8 billion in 2018 to $44.9 billion last year.

“All major lines reported moderate to high premium growth, most upwards of 8% and some lines well into the teens. Growth in most lines was driven primarily by rate and other underwriting initiatives designed to continue improving risk management and mitigating losses.”

Feature image via iStock.com/Jaroslav74