OSFI results: The good, the bad, and the ugly for Canada’s P&C industry

COVID-19 last year might have been the end of the world as we know it, to riff on a song by R.E.M., but Canada’s P&C insurance industry is doing fine — financially, at least.

After a full year of the pandemic behind us, Canada’s federally regulated insurers posted an underwriting profit of $1.93 billion in 2020 Q4, according to results published recently by the Office of the Superintendent of Financial Institutions (OSFI). That more than triples the modest $457.6 million underwriting profit the industry scraped together during the same period in 2019.

Essentially, hard market pricing, withdrawal of capacity from unprofitable business, generally benign weather, and reduced economic and driving activity due to pandemic-related lockdowns have all been cited as reasons behind the improved industry results in 2020.

Canada’s P&C industry wrote $52.3 billion in net premiums in 2020 Q4, which is 13.2% more than they wrote during the same period in 2019. And net investment income in 2020 Q4, at about $3.7 billion, showed a 12.4% improvement over the previous year.

Consistent with preliminary P&C industry statistics published by MSA Research Wednesday, data from OSFI indicate that personal lines carriers may have benefited most from the lockdown conditions imposed to avoid the spread of COVID.

Claims losses generally subsided for personal lines carriers.

iStock.com/GOCMEN

In personal property, for example, the industry’s loss ratio dropped from 58.1% in 2019 Q4 down to 51.9% in 2020 Q4. A similar trend happened in commercial property, although the loss ratio in commercial remains in the troublesome 60% range. That said, the 2020 Q4 loss ratio in commercial property decreased to 62.4%, down from 65.9% over the same period the previous year.

Less driving due to government lockdowns appeared to play a role in shaving almost 7 percentage points off the industry’s personal auto loss ratio in 2020 Q4 — down to 71.8% last year from 78.1% the previous year.

Commercial liability in 2020 Q4 was a different story altogether.

Overall, the industry’s loss ratio in commercial liability lines trended downward by roughly 3 percentage points — down from 87.7% in 2019 Q4 to 84.7% in 2020 Q4. But there’s the story about the statistician that drowned in a river an average of three feet deep. The overall loss ratio in liability masked some alarming increases within this class of business.

Specifically, in three major commercial liability lines — CGL (with products), cyber, and D&O — federally regulated P&C insurers saw loss ratios climb; in some instances, quite markedly. This happened even though total net premiums earned increased in these three lines of business by a total of 45%.

Cyber loss ratios in Canada continue to skyrocket, a trend highlighted by a whopping 207% increase in 2019 Q4. With cyber-attackers attempting to take advantage of people working from home during the pandemic, the cyber liability loss ratio jumped even higher in 2020 Q4 — up to 307%.

Loss ratios in D&O liability lines continue to climb, albeit not as dramatically as in cyber. Already on the high side (at 66.6%) in 2019 Q4, the industry’s D&O liability loss ratio ticked up to 73.9% in 2020 Q4. Brokers told Canadian Underwriter throughout the year that class action lawyers have been suing corporate boards based on the response of companies (particularly publicly-traded companies) to COVID risk.

And while CGL policies generally do not cover pandemic risk, the loss ratio in this category during the pandemic nevertheless showed a marginal 1% increase in 2020 Q4 — from 81.1% in 2019 Q4 to 82.1%.

Feature image courtesy of iStock.ca/imagedepotpro