Canadian Underwriter

Why home insurance was so profitable for Intact in 2020

March 11, 2021   by Greg Meckbach

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The hard market in home insurance is helping Canada’s largest P&C insurer make a healthy profit. But insurers need to maintain pricing discipline in personal property because weather catastrophe costs are increasing over time, suggests the chief financial officer at Intact Financial Corp.

Intact reported Feb. 9 that its combined ratio in personal property improved nearly 11 points, from 92.5% in 2019 to 81.7% in 2020. Intact’s overall company-wide combined ratio (in home, auto, commercial in Canada and the U.S.) was much higher but did improve more than six points, from 95.4% in 2019 to 89.1% in 2020.

Over the past seven years, the highest combined ratio Intact has seen in personal property has been 93%, observed Geoffrey Kwan, research analyst with RBC Capital Markets, during a fireside chat on March 9 with Intact CFO Louis Marcotte.

Kwan asked Marcotte why Intact’s underwriting results in personal property have been so good in the recent past.

It has not always been that way, suggested Marcotte. There was a time when combined ratios in personal property were 110% to 115%. “People were wondering about the future of the [home insurance] product. I think we have come a long way now,” Marcotte said during the RBC Capital Markets Global Financials Conference.

Two significant events for Canadian personal property insurers were the 2013 southern Alberta floods and the 2016 wildfire in Fort McMurray, Alta., said Marcotte.

The 2016 wildfire and 2013 flood ranked first and third in terms of industry-wide insured losses, at $4 billion and $1.7 billion respectively, A.M. Best Company Inc. reported earlier.

“What has been triggered by [large property catastrophes] are two things: A lot of discipline on the pricing, and we have seen fairly firm to hard market conditions in personal property for probably the last five or six years — and if you are disciplined you will get the maximum of that rate environment on to your books,” Marcotte said.

Marcotte alluded to overland flood coverage, which Canadian P&C insurers started offering in 2015.

If losses similar to what happened in 2013 and 2016 come back in the future, “rate discipline” would help protect the insurers at a time when they are offering expanded water coverage, suggested Marcotte.

“In an environment where weather Cats have been increasing year after year — not last year but in the five prior years — we have been seeing more elevated activity,” yet Intact was still able to be profitable in home insurance, said Marcotte.

Intact reported on Feb. 9 that its weather-related Cat losses dropped from $326 million in 2019 to $205 million in 2020.

Intact’s 2019 results in home insurance were affected in part by the 2019 Halloween wind and rain storms that affected Ontario, Quebec and Atlantic Canada. It cost the industry about $250 million in insured damages, with the brunt of it happening in Quebec ($189 million, according to CatIQ).

In Canada, severe weather losses averaged about $1.9 billion a year from 2009 through 2019, the Insurance Bureau of Canada reports. This compares to an average of $422 million a year from 1983 through 2008.

IBC recently provided its data — on what it calls “Natural disasters — major multiple-payment occurrences” — to Canadian Underwriter.

Using Statistics Canada data on population, gross domestic product and inflation, Canadian Underwriter adjusted IBC’s data each year for inflation and then expressed it per capita. That figure is $3.70 in 1983 and $39.03 in 2019.

The adjustments made by Canadian Underwriter show that, even if you account for inflation and population increases, there is still large increase in weather-related losses, suggested Craig Stewart, IBC’s vice president of federal affairs, in an earlier interview.

“Globally, as in Canada, what we are seeing is an increase in the severity and frequency of events and that is the primary driver to an increase in losses by the insurance industry.”

Most of Canada’s top 10 natural disasters have occurred in the past 10 years. The three exceptions include the 1998 ice storm at $2.3 billion, the 2005 Toronto area thunderstorm at $784 million and a 1991 southern Alberta event at $554 million. All three numbers were adjusted in 2019 for inflation by A.M. Best.

More recent Top 10 nat cats include: The June 2020 Calgary area hail storm ($1.2 billion); the July 9, 2013 Toronto rainstorm ($1 billion); the May 4, 2018 southern Ontario wind storm  ($680 million); the 2011 Slave Lake, Alta. wildfire ($591 million); and the 2014 Airdrie, Alta. hail storm ($583 million).

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1 Comment » for Why home insurance was so profitable for Intact in 2020
  1. Robert Muir says:

    In 2018 the Institute for Catastrophic Loss Reduction noted limitations in earlier loss data (before more robust CatIQ data collection in 2008):

    ICLR wrote: “Systematically collected insured catastrophe data has only been collected in this country for about a decade. The cat data that goes back further than this, while helpful to show an overall tendency, has been cobbled together from various sources and is not very robust.”

    ICLR adds candidly: “we make some really big decisions based on often very lousy inputs. Garbage in garbage out.”

    Reported losses from 1983-2008 should be viewed with some caution. Adjusting for inflation and normalizing for growth (GDP, population) is needed but cannot compensate for inadequate baseline data.

    What is driving losses? Not changing rain.

    Engineers use Environment and Climate Change Canada’s Engineering Climate Datasets to characterize observed extreme rainfall intensity and frequency – recent data shows decreasing extreme rain intensities:

    So while weather Cats may be increasing, driving factors may be hydrology and not meteorology (weather) – urbanization has been significant in many regions, and help can explain increased risks according to engineering studies. We can have more Cats despite no observed change in extreme rainfall (lack of observed change in extreme rainfall was also echoed in Canada’s Changing Climate Report).

    Recognizing the above, Radio-Canada management recently responded to its Ombudsman’s review of a 2020 report that ‘confirmed’ rain was more extreme – as the report did not meet standards for accuracy, management deleted the entire article:

    When losses are normalized by growth in studies with robust historical data, losses are decreasing:

    For example in the US with robust historical data: “Growth in coastal population and regional wealth are the overwhelming drivers of observed increases in hurricane-related damage.”

    With no change in extreme rain in Canada we should expect these same drivers.

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