Hard market? Not so fast.

The Canadian insurance industry is not at the beginning of a hard market, says Phil Cook, a P&C industry consultant and CEO of Omega Insurance Holdings.

“There are some commentators out there that will say we are at the beginning of a hard market; it’s going to turn now,” said Cook, speaking Wednesday at the Insurance Institute of Canada’s Industry Trends & Predictions: 2019 event in downtown Toronto. However, there are none of some of the attributes that suggest the industry is entering such a phase.

“All hard markets in the past have been categorized by a shortage of capital and a shortage of capacity. We have neither – there’s still a lot of capital, there’s still a lot of capacity,” Cook said during part of his presentation about Top 10 predictions for 2019.

Hard markets also usually follow two to three years of negative results. While 2018 was negative, it was only by a small amount.

“It’s also usually categorized by no new entrants to the business, which again is not correct in our situation,” Cook said. “There are new entrants into the Canadian market, but more importantly, there’s a lot of new capital going into the ILS [insurance-linked securities] market because they still see a significant opportunity for excess cat protections.”

While he doesn’t believe the industry is at the beginning of a hard market, Cook does predict there will be some isolated premium corrections. “We are already seeing some corrections in the D&O [directors and officers] market and we’ve already seen some fairly significant corrections in the aviation market, but the regular P&C market has not really been affected yet. So I would categorize the changes we are seeing as corrections. They are not heralding the beginning of a new hard market.”

Cook’s other predictions for 2019 (and beyond):

• Reinsurance costs will remain comparatively low – The renewal season for Jan. 1 of 2019 did not generate a “whole lot of increases,” Cook says
• Further expansion of the ILS market – There will probably not be significant rate increases in reinsurance. The retrocessional market, where reinsurers buy their protection, will likely get more expensive, “but it probably won’t filter back to the primary companies,” Cook says
• More protectionist legislation – Driven by the United States, but for a short duration. It will be harder for clients to do business across the border, making it harder to follow them with insurance products
• The “band” around insurer average results will continue to expand – The Top 20-25 insurance companies are now likely to have a spread of 15 points from the average in terms of overall results. “You’ve got some making significantly more [and some less] than the average,” Cook says. “That in itself is disruptive to the industry. We’re far better off when we got a large portion of our underwriting capacity within five points of the average”
• Some movement in joint ventures between insurers – An option to increase capacity. There may even be a return to a more subscription-type policy
• Insurers and (intentional) disruptors will find ways to work together – that’s already starting to happen. “Accidental” disruptors are a bigger threat to the industry
• Capital will continue to follow opportunity
• More focus on mitigating the impacts of cat disruptions – Insurers will interact more closely with the ILS market to the detriment of traditional reinsurers, causing instability for a while.