Canadian insurers continue to feel income squeeze

Canadian property and casualty insurers produced a return on equity of 2.9% for the 12 months to the end of September 2002. The industry’s net taxed earnings for the first nine months of last year dropped year-on-year by 22% to $464 million compared with the $597 million reported for the same period in 2001, according to data collected by the Insurance Bureau of Canada (IBC).

The volatile investment environment stung insurers badly in 2002, with the industry incurring an 18.5% year-on-year decline in overall investment performance (investment income and realized gains) which fell to $1.5 billion for the latest nine reporting period against the $1.9 billion reported a year ago. The drop in investment income, largely the result of plummeting realized gains that sagged by 60% year-on-year for the latest nine months, more than offset the positive growth in premiums over claims. However, the annual 12.7% and 9% growth in net written premiums and net earned premiums respectively, did see the industry’s combined ratio ease back marginally to 105.4% for the first nine months of 2002 compared with the 107.6% reported for the same period the year prior. “Industry premium and investment revenues will approach $30 billion this year [2002], while after-tax earnings through the first nine months of the year [2002] were less than $5 billion. Five consecutive years of rapid claims growth, volatile investment markets and poor earnings has left the industry vulnerable,” observes Paul Kovacs, chief economist at the IBC.

The industry’s underwriting loss for the first nine months of 2002 dropped back by 27% to $765 million against the $1 billion loss reported for the same period the previous year. Much of the underwriting recovery came from increased pricing with the annual growth in claims remaining stubbornly high at 8.6%. Insurers’ underwriting results for the third quarter of 2002 show a marked improvement over the same period in 2001, with the underwriting loss falling by nearly 50%. However, the industry’s bottom-line for the 2002 third quarter continued to be plagued by poor investment performance, with net income clocking in at $176 million against the $244 million reported for the same period in 2001.