Canadian final numbers support hardening

The final results released by StatsCan on the performance of the Canadian property and casualty insurance industry through to the end of the second quarter of last year removes any doubt that the market has entered into a broad price hardening, says Ted Belton in the latest issue of the Belton Report.

“There is now no doubt the p&c insurance market is hardening. It is no longer just anecdotal evidence,” Belton comments. He points out that the StatsCan numbers are based on the returns of companies representing 97% of the marketplace, thereby casting aside concerns over accuracy of the data. The final numbers do reveal a significant discrepancy in the reported performance of the industry for the second quarter of 2000 as shown in the preliminary performance report issued by the Insurance Bureau of Canada (IBC). In that respect, insurers notched up stronger growth in net written auto premiums while the underwriting loss ratio in this line came in slightly lower than reported.

Overall, insurers were able to boost net written premiums by 14.1% for the second quarter while reinsurers clocked a lower 8.2% rise in written business. In contrast, insurers’ growth in earned premiums amounted to only 2.5%, thereby having little impact on the ratio between premium and losses. Preliminary data for the third quarter of 2000 suggests at net written premium growth of 14.8% for insurers, supporting the view that the market will begin showing strong performance growth by the second half of this year as last year’s gain in written business feeds into 2001’s earned premiums. Expenses remain stubbornly high, Belton remarks, with the ratio having risen to 33.3% by the end of the second quarter 2000 from 32.5% from the year before. Although the cost of claims only grew by 8.8% for the second quarter, the rise in expenses lifted the combined ratio to 105%. “Assuming the current price correction holds, the bottom-line will not show improvement until well into 2001 because of the lag between earned premium and written premium growth. Meantime, the ROE languishes around a dismal 6%,” Belton observes.