Canadian Underwriter

Was 2021 a high-water mark for P&C industry returns?

August 4, 2022   by Glenn McGillivray

Poles measuring high water marks in a lake

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Despite turmoil from the ongoing COVID-19 pandemic that affected everything from the need to work remotely, auto premium rebates and the handling of Cat claims, to the availability and price of building materials and labour, Canada’s P&C insurers still managed to produce solid returns during 2021.

But several not-so-subtle hints suggest those gains might be fleeting and the industry should relish them while they’re here.

“Whether these strong returns can be sustained into 2022 remains to be seen. Despite [work from home] trends, traffic activity is returning to pre-pandemic norms, cautioned Joel Baker, MSA Research president and CEO, in his MSA Q4-2021 Quarterly Outlook Report.

“Real rate increases (those that overtake inflation) will be harder to achieve, while claim costs are being driven up by supply chain and labour shortages. 2021 might be a high-water mark for years to come.”

It’s important when looking at such positive returns to remember the Canadian P&C industry’s history, the Property and Casualty Insurance Compensation Corporation’s (PACICC) said in its 2021 annual report.

“P&C insurance profitability has been widely cyclical,” its report warned. “In the past, high levels of profitability have never proven to be sustainable for P&C insurers.”

Over the past 45 years, P&C insurers have reported returns on equity greater than 15% on 10 occasions. These years of high profitability generally appear in clusters (1977 to 1978; 1986 to 1987; and 2004 to 2006). The average return on equity in these years of peak profitability was 16.8%.

“Every single time that insurers have reported such above-average profits, competitive forces have quickly acted to cut the industry’s return on equity in half—to an average of 7.4%—within two years. The high returns on equity reported by insurers in 2020 and 2021 are likely to follow this same historical pattern,” added PACICC’s 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 Wiriya