Reinsurers in Canada’s P&C industry had a rough time negotiating through COVID last year, with the sector’s overall combined ratio skyrocketing from a profitable 92.6% in 2019 to an unprofitable 103.7% in 2020.
Claims costs were a major force behind those results. Reinsurers writing business in Canada reported more than a 10-point increase in their loss ratios last year — from 64.78% in 2019 to 75.61% in 2020. (Loss ratios are determined by dividing claims costs by premiums earned.)
“The reinsurance sector had a rough 2020 despite a 22.8 [point] increase in NPE [net premiums earned],” Joel Baker, president and CEO of MSA Research stated in the Q4-2020 MSA Quarterly Report. “Claims jumped by an astounding 43%, yielding an underwriting loss of $88 million.”
Discounting partially explains the Canadian reinsurance industry’s numbers in 2020, Baker pointed out.
In the financial world, discounting is essentially the process of figuring out the present value of a payment or a stream of payments that is to be received in the future. For example, trying to figure out the present value of what a bond investment might be worth tomorrow, considering the fluctuation of interest rates, currency values, etc.
“When discounting is stripped out [of the reinsurers’ financial results], the results look better,” Baker said. “Nevertheless, this sector underperformed the rest of the [Canadian P&C] market. “These results warrant continued rate firming. Whether such firming can be achieved at July renewals or at year-end remains to be seen.”
Out of 21 reinsurers in Canada appearing in MSA’s statistics, 11 reported an underwriting loss and a combined ratio of more than 100%.
Swiss Reinsurance Company (124.7%), Partner Reinsurance Company of the U.S. (123.9%), and XL Reinsurance America Inc. (118.4%) reported the highest combined ratios (COR) among the reinsurers who wrote more than $58 million in net premiums in Canada in 2020.
The three lowest COR results were turned in by General Reinsurance Corporation (73.8%), a member of the Berkshire Hathaway group of companies, Transatlantic Reinsurance Company (85.8%), and SCOR Canada Reinsurance Company (87.5%)