2000 fin-year a dismal experience

The Canadian property and casualty insurance industry disclosed a $130 million taxed loss for the final quarter of last year, the first quarterly loss in almost 18 years, observes Paul Kovacs, chief economist of the Insurance Bureau of Canada (IBC). The IBC’s preliminary financial figures for 2000 (based on reports of over 90% of companies) also show that the industry produced a dismal 6.2% return on equity (ROE) for the full year against the 6.8% ROE achieved for 1999. The combined ratio was nearly two full percentage points up year-on-year to 108.3% for 2000, largely on the back of spiraling underwriting costs. “The greatest concern, however, is the increase in claims costs. Ontario auto claims were more than 50% higher at the end of 2000 than during the same quarter one year earlier. Alberta auto claims were up 16%, while personal property claims were up by 40% to 60% in Ontario, Alberta and British Columbia. Furthermore, the Atlantic results remain the weakest in the country,” Kovacs says.

In fact, Kovacs notes, the loss and combined ratios rose to 81% and 114.4% respectively in the final quarter of the year. “There is still a concern this year for underwriting. The industry has to get pricing right, and there is a lot of hard work ahead to set the stage for improvement in 2002.”

On a brighter note, Kovacs adds, “Premium growth is back, we haven’t seen this kind of increase since the 1980s”. Earned premiums on auto rose by 15% in the final quarter of 2000 compared with the same period the year prior. Personal property premiums also clocked in 9% higher over the same period, with commercial premiums gaining a healthy 16%.

However, Kovacs warns, insurers will not be able to rely on investment growth this year to the same extent that they did in 2000. The industry’s realized gains for last year rose by 163% on that of 1999, with most of the gain achieved in the first three quarters. Investment income for 2000 rose by 6.3% year-on-year, producing an overall return on invested assets of 9.5% compared with the 7.3% return made for 1999. “It’s going to be difficult to cover costs [underwriting] with investment gains [this year]. I don’t expect 2001 will be as strong [on investment performance] as 2000.”