What Canada’s P&C insurers need to watch in 2024

Beyond pressures seen in the personal lines auto and property markets, the Canadian P&C industry will need to keep its eye on several things in 2024.

First there are the commercial and liability sides of the business. “Results in commercial property and liability insurance appear to be allowing insurers active in those sectors to significantly grow their capital basis,” says Grant Kelly, chief economist at the Property and Casualty Insurance Compensation Corporation (PACICC).

Plus, warns MSA Research CEO Joel Baker in his MSA Quarterly Outlook Report 4Q- 2023, seeing others procure profits may push competitors to enter these markets to get a slice of the pie.

We should also be mindful that current players may shoot themselves in the foot (as they have often done historically) by upping capacity to take advantage of rates, thereby accelerating the pace of market softening.

 

Piggy bank problems

Second thing to watch is investment income.

Kelly attributes the industry’s stellar year to a rebound in investment income over 2022, when the industry lost money on its investment portfolios for the first time in 50 years.

He explains: “P&C insurers hold approximately two-thirds of their investments in bonds. In 2022, the Bank of Canada aggressively increased interest rates to combat inflation. This had a dramatic and very negative impact on P&C insurers’ investment income. In 2023, interest rates remained steady and the P&C insurance industry [ROI] rebounded to normal levels. This resulted in a $7.7-billion swing in industry income which represents 72% of total industry profits and 115% of the increase in net income from 2022-23.”

Kelly points out last year’s [2022’s] massive increase in interest rates was rare, and not likely to be repeated. Similarly, the 2023 jump in investment income is equally rare, and also unlikely to be repeated.

There is also value in mentioning a May 15 report released by Statistics Canada, entitled Insights into the impact of extreme weather trends in Canada on homeowners insurance profitability and consumers.

The paper notes that “climate-related weather events are widespread across Canada and are shaping the homeowners insurance landscape.” Providing an analysis of losses due to extreme weather events over the last few years and going forward, the analysis notes that “there may be some shifts and balancing in the next several years for insurers to remain profitable while providing affordable insurance to consumers.”

Alas, while some clouds have silver linings, other clouds hide a pending storm.

 

Glenn McGillivray is the managing director of the Institute for Catastrophic Loss Reduction. This article is excerpted from one appearing in the June-July 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/S-S-S