September 11, 2013 by Canadian Underwriter
Vast consolidation within Canada’s property and casualty industry on the carrier side has created some large organizations with a wealth of data that could offer a competitive advantage, Greg Williams, managing senior financial analyst in the property/casualty rating division at A.M. Best Company, suggested Wednesday.
Speaking at A.M. Best’s 2013 Insurance Market Briefing – Canada in downtown Toronto, Williams told attendees the Top 10 P&C companies in 2007 accounted for about 58% of direct premiums written, approximately 68% in 2011 and about 73% now.
“That gives them access to a considerable wealth of data that they can use and most likely – if they have the systems to support it and integrate the data – will have the ability to create competitive advantages in terms of the data capabilities and pricing segmentations,” he noted.
“The leveraging of technology, the scale and the efficiency is going to have some implications on the other carriers,” Williams said. “Conversely, there are also some opportunities, probably in the niche markets, under certain markets.”
Williams’s comments reflect the outlook in Best’s Special Report: Canada Property/Casualty & Life, a report released by A.M. Best Sept. 9.
“In the coming year, insurance companies will continue to face challenges of finding alternative uses of capital and trying to remain competitive through gains in market share. Mergers, acquisitions and consolidation will continue to be instrumental in meeting those challenges and shaping the direction of the Canadian P/C insurance industry,” the report states.
“These acquisitions demonstrate that carriers are looking actively for growth in their customer base,” it also notes. “These consolidations not only will test companies’ abilities to maintain strong customer relationships, but as these entities grow larger, more complex and perhaps dominant in a segment, they also will test the limits of market share and integration.”
Williams noted that consolidation continues not only at the carrier level, but also at the broker level. “Obviously, that creates flux in the competitive environment,” he told attendees.
“Just like companies are concerned about diversification, brokers are concerned about diversification,” Williams said. “It’ll be interesting to see how this shapes up as technology and data really become the lifeline of auto, especially as it turns more into a commodity product.”
Williams told attendees there were no rating downgrades in 2012 through to June 2013, reporting that about 85% of rating upgrades were through affirmations.
The remaining were upward rate movements, the majority of which were “driven by consolidations,” he said, including when a higher-rated entity acquires a lower-rated entity. Williams cited Jevco Insurance Company, which was upgraded twice: once when it was initially acquired by Intact Financial and again when full integration occurred in 2013.
It is important to note that companies of various sizes can be upgraded to “pretty substantial rating levels,” Williams pointed out. When producing operating results on a consistent basis, maintaining risk-adjusted capitalization and having a business profile that supports a rating, “the net premiums written will not hold you back,” he said.
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