Canadian insurer insolvencies on an upward climb

The costs of insurance insolvency in Canada have been substantially lower than most countries, but the insolvency of insurance companies in this country has been on the rise over the past few decades, according to a report by the Property and Casualty Insurance Compensation Corporation (PACICC).

PACICC’s 2007 report, Why Insurers Fail, was released at its recent annual general meeting. It identifies some of the main characteristics of the 35 insolvencies that occurred within Canada during the 45-year period between 1960 and 2005.

“Historically, property and casualty insurance company insolvency has occurred in waves that coincide with periods of low industry profitability,” the report notes.

PACICC’s main conclusions include:

* the incidence of insolvency in the 1990s was higher than that of the 1980s, which was in turn higher than preceding decades;

* inadequate pricing and deficient loss reserves are the leading causes of failure for Canadian insurance companies;

* the incidence of insurer insolvency varies with industry profitability and the underwriting cycle; and

* new insurers are more likely to fail than established insurers, and insurer survival rates for new entrants tend to stabilize after a decade of operation.