November 30, 2020 by David Gambrill
If the Canadian property and casualty insurance industry’s second quarter results — a financial temperature check at the height of the pandemic — looked a bit sickly this year, the third quarter results show signs of overall recovery, data from Canada’s federal solvency regulator suggest.
Buoyed by gains in the auto and the property lines of business (and despite deteriorating results in commercial lines), the industry recorded an overall 62% increase in after-tax profit in 2020 Q3 – from $1.6 billion in 2019 Q3 to $2.61 billion this year.
Also significant is that the industry managed to flip a $460.6 million underwriting loss during last year’s Q3 into a $272.5 million underwriting profit during this year’s third quarter. Canadian P&C insurers did this despite a 1% reduction in net investment income this year over last. ($2.51 billion of net investment income in 2020 Q3 compared to $2.55 billion over the same period last year.)
Underlying the P&C industry’s overall financial health, however, is a “tale of two cities,” data from the Office of the Superintendent of Financial Institutions (OSFI) show.
The pandemic clearly had a positive impact on auto and property lines results during 2020 Q3, likely driven in part by the hard market’s increased premiums, a reduction in driving due to pandemic-related social distancing policies, as well as a relative absence of spectacular natural catastrophe events during Q3.
In the personal home property line, the loss ratio shrunk from 61% during last year’s Q3 to 55.8% in 2020 Q3. Commercial property lines likewise saw an improvement — from 69.8% in 2019 Q3 to 66.9% during the same period this year.
As already noted by the industry, social distancing and government-ordered business lockdowns required by the pandemic have reduced car use generally compared to last year. That had a big impact on the industry’s Q3 auto loss ratio, which plunged from 82.2% last year to 73.1% this year.
But while the home and auto lines have received a boost from social distancing, commercial business lines are under acute stress.
Loss ratios in cyber, directors and officers (D&O), commercial general liability (CGL, with products), and liability insurance are all up substantially.
Cyber was having issues during last year’s third quarter with a 114% loss ratio. But that’s nothing compared with the 407% during this year’s third quarter.
D&O had a microscopic loss ratio of 30.5% in 2019 Q3. That shot up to 81.5% during this year’s Q3. Sources have told Canadian Underwriter that, in public companies in particular, boards have been named in class action lawsuits over their handling of the global COVID-19 pandemic.
Class action lawsuits related to business interruption claims during the pandemic are no doubt behind the CGL loss ratio increasing from 65.6% in 2029 Q3 to 87.7% during this year’s Q3.
The same dynamic can be seen as well in liability lines, which saw the loss ratio shoot up from 61.9% last year to 84.7% this year.