Canadian p&c industry turning fortunes around

In the face of a difficult operating environment, the Canadian p&c industry is beginning to show signs of a turn around, says Standard & Poor’s director Donald Chu.Chu made the comments as part of a presentation to the Canadian Insurance Accountants Association (CIAA) recently.Between 1990 and 2002, the industry’s combined ratio hovered above the 100% mark, ranging from 103.2% to 111.2%. But 2003 saw the industry turn in a 98.7% ratio.And this success comes in the face of a number of challenges, not the least of which is the auto insurance product. Not only are most companies facing premium rollbacks and rate freezes in most provinces, they continue to face escalating bodily injury and accident benefits claims costs, specifically in Ontario. Also, the industry is tackling the legacy of Facility Association losses in 2003 which hit the $550 million mark.Nonetheless, cost containment and premium increases outside the auto product have driven financial improvement in 2003 and into early 2004, Chu notes.In interview, Chu says the industry has shown surprising resilience in the face of challenges. “If you had told me the returns for 2003 would be over 10%, I would have called you a liar,” he says, given the industry’s struggle with auto insurance reform and the implementation of rate freezes and rollbacks by provincial governments. Since 1997, the industry’s return on equity had plummeted in the face of mounting claims costs, and even in 2003, the auto combined ratio was just under 120%. Nonetheless, insurers have posted strong results, with the success of small, specialty writers of note.And even in the auto line, government reforms in many provinces are cutting into the industry’s losses despite the crackdown on rates.The “million-dollar question” now, is if a fragmented industry of more than 240 companies can maintain underwriting discipline. Chu says leading writers such as ING and Aviva need to lead by example, and if companies can avoid the “silliness” of price competition, the outlook for 2004 is bright. In his conversations with insurers, he says, he has heard a commitment to maintaining rate adequacy which should ensure improving results this year.