Canadian Market (November 01, 2010)

SASKATCHEWAN BROKERS CONCERNED BANKS, DIRECTS WILL BUY BROKERAGES TO OBTAIN SGI CONTRACTS

The Insurance Brokers Association of Saskatchewan (IBAS) is anticipating a meeting with Tim McMillan, the minister responsible for Saskatchewan Government Insurance (SGI), about the government’s proposed plan to allow the province’s motorists to obtain licenses from agencies that do not have contracts with SGI.

Saskatchewan’s policy change is not yet written. The independent broker channel in the province is concerned the proposed move would allow bank-owned insurers and direct writers an opportunity to buy brokerages for the purpose of retaining the brokers’ SGI contracts.

“With the proposed legislation it will be possible for these [property and casualty] businesses to purchase a brokerage and retain issuing contract,” observed Heather Pottle, president of IBAS, at the Insurance Brokers Association of Ontario (IBAO)’s 90th annual convention in Niagara Falls on Oct. 20.

In a follow-up interview, Pottle said brokers were concerned the proposed legislation might allow an insurer represented through an agency channel to buy an independent brokerage’s book of business and to retain the brokerage’s SGI issuing contract, without having an SGI Canada contract in place.

The agent would then be able to take the brokerage’s book of business and place it with the agent’s insurer. “That’s where IBAS’s concern stems from — will bank-owned insurers also be able to do that?”

INSURERS’ 2009 RESULTS NOT INDICATIVE OF COMPLETE FINANCIAL RECOVERY: OSFI

The operating results of Canada’s federally licensed property and casualty insurers still have not recovered to pre-financial crisis levels, Canada’s federal solvency regulator notes in its 2009-10 annual report.

“The operating results of the property and casualty (P&C) insurance sector have been significantly lower in the past two years compared to immediately preceding years,” the Office of the Superintendent of Financial Institutions (OSFI) says in its report, The Importance of Managing Risk. “Net income in the sector in 2009 was $2.5 billion, a negligible increase over the prior year, and still not recovered to pre-2008 levels….

“Industry return on equity was 7.6%, a reduction from 8% in 2008 and well down from the 16% recorded in 2007.”

OSFI notes the major unemploys derwriting challenges remain in personal lines — personal auto, (in particular, Ontario auto) and personal property.

RSA CANADA TO BUY GCAN FOR $420 MILLION

RSA Canada has entered into an agreement to purchase GCAN Insurance Company and its parent company, Glenstone Capital Incorporated, from the Ontario Teachers’ Pension Plan Board for approximately $420 million.

“This is actually the second-largest insurance company acquisition in the past 10 years in the Canadian P&C market, and it’s important because it’s now moved RSA up to the fourth-largest general insurer in Canada,” RSA Canada president and CEO Rowan Saunders said in an interview.

“GCAN is really a scarce opportunity in the Canadian marketplace. It’s a commercial insurance company that focuses on mid-market risks, large commercial corporate risks and specialty business. And that’s an area in which RSA has been looking to both bring in business and extend our appetite. This really accelerates our commercial insurance vision and strategy.”

Prior to the deal, RSA Canada stood fifth in terms of 2009 premiums written. The consolidation is expected to increase RSA Canada’s premium base from $1.9 billion (based on 2009 figures) up to $2.2 billion.

GCAN wrote annual premiums of approximately $255 million in 2009. The company 148 people in four locations across Canada, and partners with a network of 130 brokers.

Completion of the transaction is subject to regulatory approval.