Canadian Underwriter

P&C industry’s 2021 results: A one-hit wonder?

July 28, 2022   by Glenn McGillivray

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Last year was generally the most favourable for Canada’s insurers in a while – since 2006 as a matter of fact – with the industry’s return on equity (ROE) coming in at a solid 17.2% (against 11.2% in 2020).

ROE for Canada’s P&C industry has surpassed 12% only twice between 2006 and 2019 (both in 2006 and 2007), MSA Research president and CEO Joel Baker reminds us in his MSA Q4-2021 Quarterly Outlook Report.

But are these results a sign of things to come, or are they merely a one-hit wonder?

There’s no denying 2021’s financial results were solid for the Canadian P&C industry. Earned premiums grew 8.4%, while claims “fell off a cliff by 10.7%, yielding over $10.6 billion in underwriting income,” according to MSA. The industry’s combined ratio was 83.7%.

“Despite over $5 billion of dividends or transfers to parents or home office, capital levels have increased by $7 billion to $65.2 billion, and the industry MCT [minimum capital test] jumped by 30 points to 275.7,” Baker observes.

On the commercial side, MSA found direct premiums written grew by 15.2% and were up 13.4% on a net-earned basis. The healthy premium growth, married with a 13% decrease in claims year-over-year, led to more than acceptable key ratios for the segment.

Plus, the 15% ROE for commercial writers “is only lower than the industry’s because of the highly capitalized nature of commercial carriers, which is a drag on the ratio,” Baker wrote.

As for personal and multilines carriers, while NPE [net premiums earned] growth slowed to 5.7%, claims fell by 9.6% year-over-year “yielding a nearly 8-point improvement in their COR [combined operating ratio],” according to MSA.

Although much of that owes to decent returns for auto, Baker cautions “physical damage loss ratios are rearing their head and BI, while tame, seems to be turning a corner. These could indicate increases in frequency.”

Meanwhile, “reinsurers held their own in 2021 with solid premium growth coupled with a drop-off in claims, despite the Cat losses…” MSA observed. “The single-digit ROE is due to the heavy capital denominator in the ratio.”

According to Reinsurance Research Council numbers, 22 companies booked NPW [net premiums written] of $8.59 billion in 2021, a 19.1% increase over the year prior. The segment’s underwriting profit came in at $1.69 billion, with before-tax income of $1.81 billion on a COR of 79%.

Overall, “there is obviously good news in these short-term returns with the promise of favourable impact on the long-term, sustainable solvency of Canada’s insurance industry,” said the Property and Casualty Insurance Compensation Corporation’s (PACICC) 2021 annual report.

Why? Because the profits have improved capital test scores for most insurers. The average MCT figure increased from 234.2% in 2020 to 264.4% in 2021. The Branch Adequacy of Assets Test figure also increased marginally, from an average of 297.3% to 298.9%.

PACICC board chair Glenn Gibson rested solid industry results squarely on the shoulders of strong underwriting performance in auto and commercial lines. Additionally, Baker pointed to the hard market in both commercial and personal lines, lower auto losses owing to COVID-19, decent reserve releases and an absence of ‘large-scale’ catastrophes during the last two years.

But are these results here to stay?

Gibson is skeptical. “The increasing loss ratio for personal property (62.7% in 2021, up from 55.9% in 2020) and lower net investment income in 2021 (down 25.9% from 2020) give clear indication that this period of profitability is likely to be short-lived,” he said in his preamble to PACICC’s ’21 annual report.


Glenn McGillivray is the managing director for the Institute for Catastrophic Loss Reduction. This article is excerpted from one the appeared in Canadian Underwriter‘s June-July issue. Feature image by