August 12, 2021 by Jason Contant
A lack of catastrophic events in the first half of 2021 and decreased personal auto and commercial claims related to COVID-19 contributed to a 6.7% improvement in Aviva Canada’s combined operating ratio (COR) in the first half of 2021 compared to the same time a year ago.
Aviva plc reported its 2021 half-year results Thursday, including results for Canada. Aviva Canada’s COR improved from 95.5% for the first half of 2020 (HY20) to 88.8% in the first half of 2021 (HY21).
Commercial lines saw a significant COR improvement to 90.6% in HY21, down 24.4 percentage points from 115% in HY20. This was “due to decreased claims, mostly as a result of COVID-19,” Aviva plc said in its half-year report for 2021.
In personal lines, the COR for Aviva’s Canadian business was up 1.5% in HY21 to 87.9% from 86.4% in HY20, “driven by an increased contingent profit commission provision and unfavourable prior-year development, partially offset by better pricing and underwriting and reduced catastrophic weather losses.”
One main difference in the commercial results year-over-year was that last year, the insurer set aside some reserves for COVID-19-related losses on business interruption, Aviva Canada CEO Jason Storah told Canadian Underwriter in an interview Thursday. This included a large program that paid out claims for dental operations affected by the pandemic.
“We didn’t do that this year. And that is behind us,” Storah said. “So that’s a really big driver of the result, as well as just the continued underlying improvement and performance of our commercial business.”
A very benign Cat season for the first half of the year, lower driving activity due to the pandemic, along with the continued improvement in the underlying performance of the business factored into the personal lines results, Storah said.
“I would never expect to have no Cats in the first half of the year,” he added when asked if there were any surprising results from the half-year results for 2021. “That’s definitely unusual. So, we will take that as a one-off. We’ve seen Cats obviously come with a vengeance in July.”
For example, on July 2, a massive hailstorm in Calgary caused an estimated $247 million in insured damage, according to initial estimates from Catastrophe Indices and Quantification Inc. (CatIQ). Industry experts also believe that a tornado that swept through Barrie, Ont. July 15 will be considered a Cat.
As for Aviva Canada’s HY21 results, gross written premiums (GWP) were up 6% to £1.661 billion (HY20: £1.580 billion). In personal lines, GWP of £1.047 billion (HY20: £1.029 billion) was “marginally higher despite rate reductions in Ontario [auto] applied towards the end of the period,” the half-year report said. Commercial lines GWP increased to £614 million (HY20: £551 million) “mostly due to increased rate in the prevailing hard market, change in business mix, new business activity and higher policy retention.”
In HY21, the underwriting result was £174 million (HY20: £68 million), mainly driven by strong premium increases in commercial lines, lower catastrophic weather losses, and benefits from lower net claims incurred as a result of COVID-19. This was partially offset by unfavourable prior-year reserve development and higher contingent profit commission payments. Long-term investment return worsened by 10% mainly due to lower reinvestment yields and reduced dividend income.
What will the future hold? Storah told Canadian Underwriter that he expects an upward trend in driving activity. “It might be that driving activity is different in nature,” he said. “But we’re definitely expecting to see that, and then that will have an increased impact on claims.”
The insurer will then look at rate reductions and rate actions taken to see what needs to be done going forward, given increased driving activity and claims.
On the commercial side, Storah expects to see a continued hardening of rates. Although some lines of business are seeing some pressures ease, “I do think that the continued hardening of the commercial market is going to continue for the foreseeable future,” Storah said.
Beyond personal and commercial lines, Storah said Aviva will remain focused on its climate change initiatives. Earlier this year, Aviva announced it plans to become a net zero carbon emissions company by 2040. Aviva Canada also said it will invest $1 million in WWF-Canada’s nature and climate grant program to fight biodiversity loss and climate change.
There is a paperless initiative in place as well, Storah noted. “We’re really, really working hard on where we can digitize, automate and simplify our business for our customers and our brokers.”
From a pandemic standpoint, Aviva Canada opened its offices in July, up to a maximum of 20% capacity. “We’re hoping that at some point, we’ll be able to move to a phase two of that where we can get up to a capacity of 50%, maybe some time in the fall, depending on provincial guidelines” Storah said.
“We’ll look at the provincial guidelines, and we’ll add a layer of our own conservatism in place, and then we’ll go from there. We’re ready to react, depending on what the government advice is and what happens with infection rates.”
Feature image by iStock.com/takasuu