Insurance & Risk, Analysis, Events and Careers
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
| B.C.A.A. Insurance Corporation | 38,525 | 74% | 95% | 0% | 5% | 0% |
| Old Republic Insurance Company of Canada | 35,744 | 60% | 68% | 0% | 26% | 6% |
| Lawyers’ Professional Indemnity Company | 68,400 | 55% | 100% | 0% | 0% | 0% |
| Markham General Insurance Company | 19,447 | 53% | 93% | 0% | 7% | 0% |
| Clare Mutual Insurance Company | 1,139 | 51% | 70% | 0% | 30% | 0% |
| CUMIS General Insurance Company | 32,747 | 49% | 91% | 0% | 8% | 0% |
| The Mutual Fire Insurance Company of B.C. | 6,009 | 49% | 71% | 4% | 16% | 10% |
| London Guarantee Insurance Company | 126,043 | 48% | 92% | 0% | 3% | 5% |
| Canadian Northern Shield Insurance Company | 101,129 | 47% | 74% | 15% | 7% | 4% |
| Security National Insurance Company | 364,929 | 45% | 97% | 0% | 2% | 1% |
| Ceded EP by Treaty Type % | ||||||
| to both affiliated and non affiliated | ||||||
| % GPW | ||||||
| Ceded to Non Affiliated* | ||||||
| Name | ||||||
| GPW C$ 000’s | ||||||
| Quota Share Surplus Excess Faculatative |
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
| B.C.A.A. Insurance Corporation | 38,525 | 74% | 95% | 0% | 5% | 0% |
| Old Republic Insurance Company of Canada | 35,744 | 60% | 68% | 0% | 26% | 6% |
| Lawyers’ Professional Indemnity Company | 68,400 | 55% | 100% | 0% | 0% | 0% |
| Markham General Insurance Company | 19,447 | 53% | 93% | 0% | 7% | 0% |
| Clare Mutual Insurance Company | 1,139 | 51% | 70% | 0% | 30% | 0% |
| CUMIS General Insurance Company | 32,747 | 49% | 91% | 0% | 8% | 0% |
| The Mutual Fire Insurance Company of B.C. | 6,009 | 49% | 71% | 4% | 16% | 10% |
| London Guarantee Insurance Company | 126,043 | 48% | 92% | 0% | 3% | 5% |
| Canadian Northern Shield Insurance Company | 101,129 | 47% | 74% | 15% | 7% | 4% |
| Security National Insurance Company | 364,929 | 45% | 97% | 0% | 2% | 1% |
| Ceded EP by Treaty Type % | ||||||
| to both affiliated and non affiliated | ||||||
| % GPW | ||||||
| Ceded to Non Affiliated* | ||||||
| Name | ||||||
| GPW C$ 000’s | ||||||
| Quota Share Surplus Excess Faculatative |
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
On the property and casualty insurance side, Fairfax Financial Holdings, parent of Odyssey Re, estimated its after-tax losses resulting from the September 11 terrorist attacks to be around Cdn$130 million. Life insurers Manulife, Great-West Life, Canada Life and Clarica Life have also taken provisions against World Trade Center liabilities, although these losses will have little effect on the companies’ financial strength.
As a result of the tragic events in the U.S., dramatic rate increases and reduced coverage in reinsurance will transform the Canadian insurance industry. The overwhelming majority of reinsurance treaties are scheduled for renewal by December 31, 2001. Reinsurers, intermediaries and primary companies are in the midst of grueling negotiations that are not expected to end before mid to late December. Reinsurers anticipate rate increases ranging from 30-70% depending on treaty type and underlying risk. While the major global reinsurers maintain that their capacity will be sufficient, it will come at a price. In addition to increased costs, some reinsurers are also planning to demand much tighter underwriting and loss control from their primary clients. Reinsurers are warning some primary companies that missing the performance targets set by the reinsurers for 2002 may result in non-renewal or even higher reinsurance premiums in 2003. It is during hard times like these that favorable long term relationships with reinsurers will prove invaluable.
Valuing the reinsurer relationship
Another side effect of the attacks in the U.S. is the unwillingness of reinsurers to cover terrorism risk. Should reinsurers exclude this risk effective Jan. 1, it will create a coverage gap with respect to primary business written in 2001, but still in-force well into 2002. In addition, if reinsurers elect, or are instructed by their head offices to exclude “fire-following” acts of terrorism cover, this will result in another serious gap. Primary companies may exclude terrorism cover but are prohibited by law from excluding “fire-following” cover. The same restrictions do not apply to reinsurers. If they decide to exclude the coverage, the exposure for commercial risk writers would be immense. Unless specialist reinsurance cover is made available, the federal or provincial governments may be called upon to act as excess reinsurers of last resort.
In many cases, primary writers are re-evaluating their business lines taking the cost and availability of reinsurance into consideration when determining pricing and whether to renew certain risks. A.M. Best is concerned about marginally capitalized companies with heavy property writings in regions, such as in urban B.C., which have significant catastrophe exposure. Higher costs and reduced capacity may force these companies to purchase less reinsurance and increase their retentions, further exposing their capital base. It may also force them to diversify into unfamiliar lines or territories where reinsurance is more readily available.
In the short term, companies heavily dependent on reinsurance may experience premium deficiencies as a result of the mismatch between business written in 2001 and the associated earnings that will only be fully earned in 2002 under much more onerous reinsurance terms.
Worsening conditions
A.M. Best believes that the Canadian p&c industry’s total combined ratio for 2001 will exceed 110%, this largely due to persistent inadequate pricing in the Ontario auto market. Ontario’s financial services regulator, the Financial Services Commission of Ontario (FSCO), has given companies some latitude and rates are hardening. However, in some cases, rate increases in personal lines will not keep pace with reinsurance increases over the next 12-24 months, causing further deterioration in company underwriting profitability. Additionally, “rate shock” will drive many insureds to seek competitive quotes, disrupting retention and book stability as well as driving up acquisition expenses.
Sagging equity markets combined with diminished fixed income prospects will further erode companies’ ability to offset underwriting losses with investment income in the near to mid term. Consequently, A.M. Best does not forecast a recovery in the Canadian property/casualty arena before the 4th quarter of 2002 or early in 2003. The agency believes, however, that disciplined, well-capitalized companies that are not significantly reliant on external reinsurers will benefit greatly from hardening primary rates and improved underwriting profitability. Typically, such companies include: Wawanesa Mutual (rated A+ “Superior”), Axa Assurances Inc. (rated A+ “Superior”), and Kingsway Financial’s Canadian subsidiaries which are rated A “Excellent”.
A.M. Best also believes that in the next 12-24 months some mid-sized foreign players with under-performing operations in Canada will elect to exit the market. And if, as expected, significant hardening takes hold, disciplined underwriters will emerge stronger and more profitable in 2003. A.M. Best will continue to closely monitoring the financial strength of players in the Canadian p&c insurance marketplace during these difficult times.
Life insurers
The direct financial impact related to the September 11 terrorist attacks is relatively insignificant to Canadian life companies, especially in terms of exposure as a percentage of capital. Furthermore, the Canadian life companies that are affected possess diverse operational and geographic profiles, which mitigate the impact of event-driven charges. Nonetheless, A.M. Best will continue to monitor the “indirect effects” on Canadian life companies as a result of the terrorist attacks. “Indirect effects” include:
Decreasing fee-based income (variable annuities, mutual funds and pensions) as a result of continued weak equity markets;
Increasing reserves and capital levels for guaranteed minimum death benefits for U.S. variable annuities and Canadian segregated fund guarantees;
Impairments to investment portfolios as a result of a weakened economy: equities, real estate, mortgages (specific sectors include hotels and airlines);
Interest rate risk associated with a continued decline in interest rates that may impact fixed annuity and universal life business with minimum guaranteed interest crediting rates;
Reduced financial flexibility of stock companies whose share prices — i.e. currency for mergers and acquisitions — have declined.
Canadian P/C Company Dependence on External Reinsurance Data. as at Dec 31, 2000 (excludes branches)
| B.C.A.A. Insurance Corporation | 38,525 | 74% | 95% | 0% | 5% | 0% |
| Old Republic Insurance Company of Canada | 35,744 | 60% | 68% | 0% | 26% | 6% |
| Lawyers’ Professional Indemnity Company | 68,400 | 55% | 100% | 0% | 0% | 0% |
| Markham General Insurance Company | 19,447 | 53% | 93% | 0% | 7% | 0% |
| Clare Mutual Insurance Company | 1,139 | 51% | 70% | 0% | 30% | 0% |
| CUMIS General Insurance Company | 32,747 | 49% | 91% | 0% | 8% | 0% |
| The Mutual Fire Insurance Company of B.C. | 6,009 | 49% | 71% | 4% | 16% | 10% |
| London Guarantee Insurance Company | 126,043 | 48% | 92% | 0% | 3% | 5% |
| Canadian Northern Shield Insurance Company | 101,129 | 47% | 74% | 15% | 7% | 4% |
| Security National Insurance Company | 364,929 | 45% | 97% | 0% | 2% | 1% |
| Ceded EP by Treaty Type % | ||||||
| to both affiliated and non affiliated | ||||||
| % GPW | ||||||
| Ceded to Non Affiliated* | ||||||
| Name | ||||||
| GPW C$ 000’s | ||||||
| Quota Share Surplus Excess Faculatative |
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
On the property and casualty insurance side, Fairfax Financial Holdings, parent of Odyssey Re, estimated its after-tax losses resulting from the September 11 terrorist attacks to be around Cdn$130 million. Life insurers Manulife, Great-West Life, Canada Life and Clarica Life have also taken provisions against World Trade Center liabilities, although these losses will have little effect on the companies’ financial strength.
As a result of the tragic events in the U.S., dramatic rate increases and reduced coverage in reinsurance will transform the Canadian insurance industry. The overwhelming majority of reinsurance treaties are scheduled for renewal by December 31, 2001. Reinsurers, intermediaries and primary companies are in the midst of grueling negotiations that are not expected to end before mid to late December. Reinsurers anticipate rate increases ranging from 30-70% depending on treaty type and underlying risk. While the major global reinsurers maintain that their capacity will be sufficient, it will come at a price. In addition to increased costs, some reinsurers are also planning to demand much tighter underwriting and loss control from their primary clients. Reinsurers are warning some primary companies that missing the performance targets set by the reinsurers for 2002 may result in non-renewal or even higher reinsurance premiums in 2003. It is during hard times like these that favorable long term relationships with reinsurers will prove invaluable.
Valuing the reinsurer relationship
Another side effect of the attacks in the U.S. is the unwillingness of reinsurers to cover terrorism risk. Should reinsurers exclude this risk effective Jan. 1, it will create a coverage gap with respect to primary business written in 2001, but still in-force well into 2002. In addition, if reinsurers elect, or are instructed by their head offices to exclude “fire-following” acts of terrorism cover, this will result in another serious gap. Primary companies may exclude terrorism cover but are prohibited by law from excluding “fire-following” cover. The same restrictions do not apply to reinsurers. If they decide to exclude the coverage, the exposure for commercial risk writers would be immense. Unless specialist reinsurance cover is made available, the federal or provincial governments may be called upon to act as excess reinsurers of last resort.
In many cases, primary writers are re-evaluating their business lines taking the cost and availability of reinsurance into consideration when determining pricing and whether to renew certain risks. A.M. Best is concerned about marginally capitalized companies with heavy property writings in regions, such as in urban B.C., which have significant catastrophe exposure. Higher costs and reduced capacity may force these companies to purchase less reinsurance and increase their retentions, further exposing their capital base. It may also force them to diversify into unfamiliar lines or territories where reinsurance is more readily available.
In the short term, companies heavily dependent on reinsurance may experience premium deficiencies as a result of the mismatch between business written in 2001 and the associated earnings that will only be fully earned in 2002 under much more onerous reinsurance terms.
Worsening conditions
A.M. Best believes that the Canadian p&c industry’s total combined ratio for 2001 will exceed 110%, this largely due to persistent inadequate pricing in the Ontario auto market. Ontario’s financial services regulator, the Financial Services Commission of Ontario (FSCO), has given companies some latitude and rates are hardening. However, in some cases, rate increases in personal lines will not keep pace with reinsurance increases over the next 12-24 months, causing further deterioration in company underwriting profitability. Additionally, “rate shock” will drive many insureds to seek competitive quotes, disrupting retention and book stability as well as driving up acquisition expenses.
Sagging equity markets combined with diminished fixed income prospects will further erode companies’ ability to offset underwriting losses with investment income in the near to mid term. Consequently, A.M. Best does not forecast a recovery in the Canadian property/casualty arena before the 4th quarter of 2002 or early in 2003. The agency believes, however, that disciplined, well-capitalized companies that are not significantly reliant on external reinsurers will benefit greatly from hardening primary rates and improved underwriting profitability. Typically, such companies include: Wawanesa Mutual (rated A+ “Superior”), Axa Assurances Inc. (rated A+ “Superior”), and Kingsway Financial’s Canadian subsidiaries which are rated A “Excellent”.
A.M. Best also believes that in the next 12-24 months some mid-sized foreign players with under-performing operations in Canada will elect to exit the market. And if, as expected, significant hardening takes hold, disciplined underwriters will emerge stronger and more profitable in 2003. A.M. Best will continue to closely monitoring the financial strength of players in the Canadian p&c insurance marketplace during these difficult times.
Life insurers
The direct financial impact related to the September 11 terrorist attacks is relatively insignificant to Canadian life companies, especially in terms of exposure as a percentage of capital. Furthermore, the Canadian life companies that are affected possess diverse operational and geographic profiles, which mitigate the impact of event-driven charges. Nonetheless, A.M. Best will continue to monitor the “indirect effects” on Canadian life companies as a result of the terrorist attacks. “Indirect effects” include:
Decreasing fee-based income (variable annuities, mutual funds and pensions) as a result of continued weak equity markets;
Increasing reserves and capital levels for guaranteed minimum death benefits for U.S. variable annuities and Canadian segregated fund guarantees;
Impairments to investment portfolios as a result of a weakened economy: equities, real estate, mortgages (specific sectors include hotels and airlines);
Interest rate risk associated with a continued decline in interest rates that may impact fixed annuity and universal life business with minimum guaranteed interest crediting rates;
Reduced financial flexibility of stock companies whose share prices — i.e. currency for mergers and acquisitions — have declined.
Canadian P/C Company Dependence on External Reinsurance Data. as at Dec 31, 2000 (excludes branches)
| B.C.A.A. Insurance Corporation | 38,525 | 74% | 95% | 0% | 5% | 0% |
| Old Republic Insurance Company of Canada | 35,744 | 60% | 68% | 0% | 26% | 6% |
| Lawyers’ Professional Indemnity Company | 68,400 | 55% | 100% | 0% | 0% | 0% |
| Markham General Insurance Company | 19,447 | 53% | 93% | 0% | 7% | 0% |
| Clare Mutual Insurance Company | 1,139 | 51% | 70% | 0% | 30% | 0% |
| CUMIS General Insurance Company | 32,747 | 49% | 91% | 0% | 8% | 0% |
| The Mutual Fire Insurance Company of B.C. | 6,009 | 49% | 71% | 4% | 16% | 10% |
| London Guarantee Insurance Company | 126,043 | 48% | 92% | 0% | 3% | 5% |
| Canadian Northern Shield Insurance Company | 101,129 | 47% | 74% | 15% | 7% | 4% |
| Security National Insurance Company | 364,929 | 45% | 97% | 0% | 2% | 1% |
| Ceded EP by Treaty Type % | ||||||
| to both affiliated and non affiliated | ||||||
| % GPW | ||||||
| Ceded to Non Affiliated* | ||||||
| Name | ||||||
| GPW C$ 000’s | ||||||
| Quota Share Surplus Excess Faculatative |
* Excludes out-of-Canada business ceded to registered reinsurers.
Source: Best’s WinTRAC P/C Pro CD-ROM – See www.ambest.ca for details on this product.
** For Best’s Guide to Ratings, please see www.ambest.ca
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