Canadian Insurers Reap 3-Q Underwriting Boon

Canadian federally regulated insurers produced a return on equity (ROE) of 13% for the third quarter of this year, primarily on the back of a healthy underwriting gain. The industry’s taxed profit for the latest reporting period clocked in at $1.83 billion, more than double the $890 million reported by insurers for the third quarter of 2003, according to industry financial data collected by the Office of the Superintendent of Financial Institutions (OSFI).

Insurers generated an underwriting profit of $1.1 billion for the third quarter of this year, showing a more than tenfold increase on the $56.7 million reported for the same period a year ago. The industry also benefited from improved investment returns, with net investment income (investment income and realized gains combined) for the latest reporting period rising by 15.3% to $1.4 billion compared with the $1.2 billion reported at the end of last year’s third quarter. As a result, the industry’s pre-tax income for the third quarter of this year more than doubled to $2.69 billion (3-Q 2003: $1.3 billion). The latest return does, however, point to moderate weakening of the industry’s operating margin, which for the third quarter of 2004 came in at 15.7%, with the second quarter at 16.9% and the first quarter’s 18.3%.

Insurers’ claims costs for the third quarter of this year grew by 10.2% to $9.6 billion compared with the $8.7 billion reported for the same period in 2003. This saw a six percentage point improvement in the industry’s loss ratio which came in at 63.8% versus the 69.9% ratio reflected at the end of the same period a year ago. The combined ratio for the third quarter of this year shows even better improvement at 93% compared with the 100%-plus ratio reported for the same period last year.

Notably, insurers were able to maintain strong annual growth of 17.4% in net written premiums for the third quarter of this year, which clocked in at $16 billion (3-Q 2003: $13.6 billion) – suggesting that pricing momentum is being maintained. The industry’s net earned premiums for the latest reporting period increased year-on-year by 21% to $15 billion (3-Q 2003: $12.4 billion).