Insurers Gain Stronger Profit Footing for 1-Q

Insurers bounced back into profitability for the first quarter of this year, with net earnings over three and a half times higher at $396 million compared with the $108 million reported for the same period in 2002, according to Insurance Bureau of Canada (IBC) preliminary industry data. As a result, the industry’s ROE clocked in at 3.3% for the latest reporting period against the 2.3% return made for the first quarter of last year and the record low 1.8% return shown for the whole of 2002.

Insurers benefited from both improved underwriting conditions and a recovery in investment income growth for the first quarter of this year. The industry’s underwriting loss for the latest reporting period declined year-on-year by more than 65% to $164 million compared with the $473 million loss reported for the same period a year ago. The improved underwriting result saw the combined ratio fall by six percentage points to 102.8% from the 108.5% shown at the end of the first quarter of 2002, and also an improvement on the 105.9% ratio reported for the full year. Insurers’ loss ratio for the first quarter of this year came in at 73.8% against the 78.4% ratio reported for the same period the previous year.

The industry’s investment income rose by 11.6% to $577 million for the first quarter of this year compared with the $517 million reported for the same period a year ago. Net written and earned premiums also reflect a strong recovery for the latest reporting period, with each rising year-on-year by 19.1% to $6.3 billion and by 20.1% to $6.7 billion respectively. Notably, claims costs rose by 12.4% to $4.9 billion for the first quarter of 2003 compared with the $4.4 billion incurred during the same period a year ago.

Paul Kovacs, the IBC’s chief economist, notes that approximately half of the insurance markets in Canada have regained profitability and that for these lines the hard market is ending. However, insurers continue to experience difficulty with auto where growth in claims costs in Ontario, Atlantic Canada and Alberta remain excessively high. The loss ratio for Ontario auto rose once again in the first quarter of this year, he adds. “Before we can see any long-term relief for automobile insurance consumers, we need government to take action and implement product changes in almost every province. Until governments take action to contain costs related to settling claims, these markets will remain unstable for insurers and consumers alike.”