Marketplace

CANADIAN MARKET 

Improved results for Canadian p&c insurers

Federally regulated property and casualty insurers in Canada reported improved financial results for the first half of 2012, posting a collective quarterly profit of $1.52 billion as opposed to $1.09 billion for the same period last year.

Insurers wrote net premiums of $15.9 billion for the first six months of this year, up from $14.5 billion for the first half of 2011, note figures from the Office of the Superintendent of Financial Institutions (OSFI).

For Canadian p&c insurers, the claims ratio in the auto insurance personal accident category rose marginally in 2012 Q2 to 59.99%, up from 56.87% in Q1; the claims ratio in personal property lines increased from 52.87% in 2012 Q1 to 57.52% in Q2; and the claims ratio on the commercial property side decreased marginally to 63.18% in 2012 Q2.

REGULATION

RBC thumbing nose at federal rules: IBAC

The Insurance Brokers Association of Canada (IBAC) has charged that the country’s largest bank persists in defying federal rules, arguing in a letter to OSFI that RBC seems to be allowing its insurance arm to solicit new business from current banking customers.

IBAC cites marketing correspondence on RBC Insurance letterhead. “As an RBC Royal Bank credit card client, you already have a relationship with RBC Royal Bank. Now you can trust RBC Insurance for your insurance needs.”

The marketing material “attempts to leverage the customer’s relationship with RBC Royal Bank in order to entice and solicit the customer to insure his cars and home with RBC Insurance,” Dan Danyluk, CEO of IBAC, notes in a July 20, 2012 letter to OSFI. This is at odds with Section 8 of the Insurance Business (Banks and Bank Holding Companies) Regulations, Danyluk writes.

RBC’s response has been that it is “committed to regulatory compliance and respects the Bank Act and privacy legislation.”

OSFI releases draft revisions to governance guideline

OSFI is seeking comment on its Draft Revisions to the Corporate Governance Guideline, which have not been changed since 2003.

Among other things, the 20-page draft guidelines contain a section that includes a number of recommendations concerning the recognition of risk management principles by boards of directors.

These include that the organization’s board of directors should periodically commission independent third-party reviews to assess the federally regulated financial institution’s (FRFI) risk management systems and practices, and an FRFI should have a board-approved risk appetite framework that guides the amount of risk that the FRFI is willing to accept.

RISK MANAGEMENT

Low yields could lead insurers to higher-risk investments

Sluggishly low interest rates and the ongoing European debt crisis have spurred more insurance companies to look at boosting their returns through potentially riskier investment vehicles, note results of a recent survey of chief investment officers (CIOs) by Goldman Sachs Asset Management (GSAM).

The poll of CIOs at 152 global insurers representing $3.8 trillion in assets indicated current yields are resulting in lower investment returns. Twenty-six percent of insurers expect to increase overall investment risk, while 14% expect to decrease risk.

“Insurers are migrating down the corporate credit quality spectrum via increasing allocations to high yield, bank loans and mezzanine debt. In addition, insurers intend to increase their allocations to such asset classes as real estate, emerging market debt and private equity,” GSAM states in the report, Seeking Return in an Adverse Environment.

The survey also points to reported intentions with regard to risk management infrastructure. “In our view, insurers are now better-positioned to add risk incrementally to portfolios, as they are well-capitalized, continue to invest in their risk management infrastructure and are seeking return through prudent diversification.”

CLAIMS

$180 million in insured costs for two storms

The preliminary estimate of insured damage for a severe thunderstorm in and around Edmonton in mid-July is pegged at $100 million.

Thousands of claims have been filed for damage to homes, cars and businesses in the wake of the storm, confirms data collected by Property Claim Services Canada (PCS-Canada) and released by the Insurance Bureau of Canada (IBC).

The heavy rainfall resulted in flooding to streets, basements, businesses, automobiles and construction sites, IBC reports. The storm brought with it strong winds and golf ball-sized hail.

The estimated losses edged out those for a band of thunderstorms in Ontario on July 22-23 that stretched from Hamilton to Ottawa. PCS-Canada notes a preliminary estimate of $80 million in insured damages related to claims for homes, cars and businesses.

IBC reports the storms spawned strong winds, heavy rains, flash flooding, hail and reports of tornadoes.

REINSURANCE

Increased chance of above-normal hurricane season

The National Oceanic and Atmospheric Administration (NOAA) predicted in August that an active Atlantic hurricane season, with six named storms at that point, would likely be joined by at least as busy a second half of 2012.

Storm-conducive wind patterns and warmer-than-normal sea surface temperatures are in place in the Atlantic, reported NOAA’s Climate Prediction Center, a division of the National Weather Service.

The updated outlook, which was issued by NOAA on August 9, “still indicates a 50% chance of a near-normal season, but increases the chance of an above-normal season to 35% and decreases the chance of a below-normal season to only 15% from the initial outlook issued in May.”

Across the Atlantic Basin for June 1 to November 30, the outlook projected 12 to 17 named storms, five to eight hurricanes and two to three major hurricanes.