Canadian Underwriter

Insurers finish 2004 with healthy bottom-line

February 20, 2005   by Canadian Underwriter

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The Canadian property and casualty insurance industry will likely finish 2004 with a 65% year-on-year gain in net profit of $4.2 billion, producing a return on equity (ROE) of just over 20%, according to preliminary financial data released by the Insurance Bureau of Canada (IBC). The robust return in industry earnings confirms renewed financial strength, and therefore market stability, of the p&c insurance sector after several years of weak performance, says Stan Griffin, president of the IBC. "Last year we returned to profitability and today with some relief we can say to policyholders, government and shareholders that the industry is strong again."
The strong earnings gain made by insurers for 2004 was achieved through underwriting, with companies lifting underwriting income by almost five times to $2.7 billion compared with the $559 million posted the year prior. Commenting on the earnings rebound and the improvement in underwriting, Griffin notes that "insurance is a cyclical business years of profit are often preceded by years of low returns". Mark Yakabuski, the bureau’s vice president of the Ontario region, observes that the improved financial performance of insurers has seen a significant return of market capacity across the personal and commercial business segments. Notably, last year saw about 150,000 auto policies leave the Facility Association (FA), he adds. However, in contrast to the stellar underwriting performance, the industry’s net investment income (investment income and realized gains combined) for last year deteriorated marginally to $2.9 billion versus the 3 billion reported for 2003.
The industry’s financial return for last year shows a marked reduction in both premium and claims expense growth. Insurers’ net earned premiums for 2004 rose by 11.2% to $32.5 billion compared with the $29.2 billion reported the year before while net written premiums grew at a more sedate 6% over the same period to reach $33.3 billion (2003: $31.4 billion). Insurers’ claims costs for 2004 rose year-on-year by a modest 1.2% to $20.6 billion (2003: $20.4 billion) which, combined with the gains made on underwriting, resulted in a more than a six percentage point improvement in the industry’s combined ratio at 92% versus the 98.4% ratio reported the previous year.