Rate reduction target for Ontario auto may ‘negatively impact’ underwriting profitability: OSFI

The Office of the Superintendent of Financial Institutions (OSFI) has released its annual report for 2013-14, noting that the target in Ontario to reduce auto insurance premiums by 15% could have a negative impact on profitability.

“Domestically, personal auto insurance continued to be the major underwriting challenge. Reforms related to accident benefits improved profitability in Ontario, the largest auto insurance market,” the report says.

“However, the legislated target of 15% rate reductions in Ontario by August 2015 (with 8% reductions to be realized by August 2014) may negatively impact Ontario personal auto insurance underwriting profitability if the additional claims-related measures introduced in the 2013 Ontario budget are delayed in implementation.”

Overall, underwriting income for the property and casualty industry in 2013 was “effectively break-even, with investment returns being the main contributor to overall earnings.”

Net income of $2.4 billion for the industry dropped 37.5% over the previous year’s net income of $3.9 billion, while return on equity fell to 7.4%, from 11.4% a year earlier, according to the report. The industry combined ratio also deteriorated from 96.2% to 100.2% in 2013.

Capital ratios for the industry last year were also stable relative to 2012, the report notes.

The full annual report is available on OSFI’s website.