Reserve releases in 2008 mask a Cdn$1.7-billion underwriting loss: IBC

As disappointing as the Canadian property and casualty insurers’ underwriting results were in 2008, the release of Cdn$1.42 billion in reserves last year actually flattered the final tally, industry leaders learned at the 2009 Swiss Re Breakfast held at the National Club in Toronto.
Overall, the Canadian property and casualty market saw its combined ratio rise about seven points in one year, from 93.8% in 2007 to 101.3% in 2008, the largest single-year increase in a combined ratio since the statistics were recorded beginning in 1975.
Factoring out the use of reserves, Canadian primary insurers absorbed a Cdn$1.7-billion underwriting loss in 2008. “Cause for very great concern,” Insurance Bureau of Canada (IBC) vice president of policy Barbara Sulzenko-Laurie said.
In 2008, capital in the Canadian property and casualty industry fell for just the third time in 33 years. Relatively speaking, the capital level in 2008, at just over Cdn$30 billion, remains just below the peak high recorded in 2007. Since 1975, industry capital has declined only in 1987-88, 2000-01 and in 2007-08.
Brian Gray, chief underwriting officer at Swiss Re, said current market conditions in the global property and casualty industry would ordinarily be described as a “disaster.” But the property and casualty industry’s numbers still compared favourably to TSX stock market results and a “bloodbath” in the life and health insurance industry, he noted.
In all, global property and casualty insurers lost US$270 billion in capital last year.
Gray said under normal circumstances, investment income and underwriting income would make up for the erosion of capital seen in 2008. But reserve releases have masked the fact that underwriting results are not making up for capital erosion.
“Calendar year results right now are somewhat flattered by reserve releases,” he said.
Gray cited a published market analysis that says reserve releases are “well into the cheating phase,” when they make “calendar-year results look better than the actual results.”