Soft pricing, increasing expenses mar Canadian 2007 Q1 results

Continued soft pricing, expense inflation and a drop in investment income marred the 2007 Q1 results reported by the Canadian insurance industry, according to a recent report by MSA Research Inc. and Baron Insurance Services Inc.Despite a 4.2% increase in direct premiums written ($7.7 billion at three months 2007 versus $7.4 billion for the same period in 2006), underwriting income fell precipitously by 66% to $294 million from $870 million in the year-earlier period due to significant increases in claims and expenses, the report, authored by MSA president Joel Baker, states.The report goes on to note that 2007 Q1 investment income fell 14%, factoring in the introduction of fair value accounting. Net income for 2007 Q1 dropped 42% down from Cdn$1.52 billion in 2006 Q1 to Cdn$878 million in 2007 Q1. Anecdotal information suggests that the severity of the deterioration in [2007] Q1 is overstated and that second-quarter results will show some improvement, the report observes. We shall see.The report also notes a seven-point deterioration in the 2007 Q1 net loss ratio, which ended up at 67.1%.The following factors contributed to the poor 2007 Q1 showing, according to MSA: Double-digit increases in loss ratios for the commercial property business, driven largely by Ontario-related claims; increases in auto loss ratios, with specific deterioration in Ontario and Newfoundland; an average 15-point increase in net liability loss ratios; increases in underwriting expenses a reduction in investment income driven by a 62% drop in realized gains.