Market discipline critical, OSFI tells insurance industry

Property and casualty companies enjoyed 20% or more returns on equity in 2006, but even a minor change in the economic environment can lower these numbers, Canadas acting financial superintendent told attendees of the 2007 Property and Casualty Insurance Industry Forum in Cambridge, Ontario. Julie Dickson, acting superintendent of the Office of the Superintendent of Financial Institutions (OSFI), told attendees that preparation is the key to managing risk, assessing pricing and containing costs, according to an A.M. Best report.A.M. Best quotes Dickson as saying that prudent companies, aware that the good times dont carry on forever, plan for tougher times and catastrophe exposure is at the top of the list of immediate risks facing the industry. What further steps are necessary for the industry to take? A.M. Best quotes Dickson as saying. Have the lessons from other jurisdictions been fully digested? We have seen that no amount of planning for the unexpected is too much. The need for in-depth planning cannot be exaggerated.According to A.M. Best, Dickson pointed out that the OSFI is not concerned with the Cdn$1.7 billion in total dividends being paid out to insurance company shareholders. “Too much capital sloshing around gives rise to the natural desire to find something to do with it,” Dickson is quoted as saying. This may lead to the writing of business with a focus on the short term, while ignoring economic fundamentals. This can exacerbate the underwriting cycle and lead to a loss of discipline in underwriting decisions.