FA Losses Near Half Billion Dollars

The Facility Association (FA) – the industry’s pool for high-risk drivers – produced a loss exceeding $490 million for 2003. Speaking at the FA’s recently held AGM, CEO David Simpson notes that premium volume for 2003 rose year-on-year by more than 300% to almost $1.1 billion, thus boosting the FA’s countrywide share of the auto insurance market to a 5.1% stake.

Last year also saw the FA’s combined ratio climb to 166% from the 160% ratio reported for 2002. Association chair Andrew Cartmell says the board worked last year to deal with these losses, including investment in more timely data to support pricing. As well, the FA submitted new rate filings in provinces where rates were deemed inadequate. Claims audits, meetings with the Financial Services Commission of Ontario (FSCO), and a review of Ontario private passenger rates were also undertaken, Cartmell adds.

Ontario contributed about $488 million of last year’s loss, on a combined ratio of 204%. The FA’s marketshare quadrupled in Ontario, Simpson says, amounting to a 3.5% stake, and challenging the pool’s servicing carriers with increased volumes. While the FA continues to struggle with losses in Atlantic Canada, a successful reduction of business in New Brunswick is being achieved on the heels of tort reform and a rate increase introduced by the association. The province also improved its combined ratio to 104% last year, compared with the 182% ratio reported the year prior. “By contrast, in Nova Scotia, where the government mandated an industry wide rate reduction and imposed a rate freeze, our volumes continued to climb,” Cartmell observes. In that province, the FA’s marketshare rose to a record 7.1% for 2003, with the combined ratio hitting 127%.

In Newfoundland, Simpson notes, the FA’s marketshare reached 7.5%, “easily its highest level in over 10 years”. He adds, “our concerns, of course, are that given the difficult market conditions in the province, our volumes will continue to increase and our losses will worsen”. Notwithstanding a recently announced 15% rate rollback, a $9.5 million loss is projected to arise from Newfoundland for 2004. Moving forward, the FA intends to add the “cost of capital” to its future rate filings, and has recently used this for the first time in Prince Edward Island.