The pendulum of capitalization “really swinging” in Canadian reinsurance market

When it comes to capitalization of the Canadian reinsurance market, the “pendulum is really swinging,” said Robert DeRose, vice president of AM Best Company’s U.S. Reinsurance and Bermuda Market.
DeRose spoke at the AM Best Company’s 2009 Insurance Market Briefing — Canada on Sept. 10 in Toronto.
At the beginning of 2009, Canada’s reinsurance market was very focused on capitalization preservation, DeRose told delegates at the conference.
“The capital markets were dried up,” he said. “People were really concerned about financial flexibility. That’s easing somewhat.”
Companies have really started to build capitalization from their earnings and from the low catastrophe losses they’ve incurred, he added. “Now they are focussing on ways to deploy it.”
But managers of reinsurance operations need to be weary of releasing loss reserves to soften deteriorating accident year results, DeRose cautioned.
“The big culprit is inflation,” he said. “You need to make sure that you’re pricing factors in that might be five years off,” he said. “If you are using reserve releases to offset pricing, by the time that you hit five years off, there may be problems… We’re keeping a close eye on it.”