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P&C industry will return to sustainable growth: A.M. Best
Fort McMurray will impact current-year results.
Staff on November 9, 2016
(Chris Bolin, Maclean’s)
The Canadian economy faced a number of headwinds during the first half of 2016, most notably the devastating Fort McMurray wildfires and the continued weakness in the commodity industries. While the Canadian property/casualty (P&C) industry recorded another year of strong financial results in 2015, current-year results will be affected by the worst catastrophic P&C event in its history, according to a new A.M. Best special report.
The May 1 fire at Fort McMurray in Alberta burned for weeks with total damage estimates ranging up to $4.6 billion. Despite substantial losses, many of the top homeowners and auto writers in Alberta have diverse national geographical and product profiles, and possess strong risk-adjusted capitalization, comprehensive reinsurance programs and solid overall risk management capabilities, according to the report.
“What this event will indicate at year end is that it was actually an earnings event for the Canadian domestic P&C industry,” said Joel Silverthorn, a senior financial analyst at A.M. Best. “It was not an event that’s going to hit many companies’ surpluses.”
Canadian life writers continued to wrestle with the industrywide issues brought by the ongoing low interest rate environment, but they remain well-capitalized and are maintaining pricing discipline, according to the report. Earnings were relatively strong in 2015, attributable to solid underwriting fundamentals and management actions to reduce interest rate risks, including increases to existing hedge programs. As volatility in commodity markets such as oil and gas, the weakening of the Canadian dollar and the Bank of Canada’s reduction in the overnight rate have led to economic challenges for Canada, many insurers continue to seek opportunities globally to grow and diversify.
Many have remained conservative with their capital strategies until the full impacts of regulatory changes become clearer, according to the report. Canada’s Office of the Superintendent of Financial Institutions (OSFI) released the final draft of its Life Insurance Capital Adequacy Test (LICAT) in September, which is expected to take effect in 2018.
“We don’t expect the model to really change the capital adequacy for the whole industry,” said Edward Kohlberg, an associate director with A.M. Best. “OSFI said it views the industry as well-capitalized right now. But it might make companies look at different business lines and make sure they have enough risk-based capital within each one.”
Overall operating earnings for the (life) industry remain strong, as underwriting performance has been generally favorable, despite some pockets of poor performance for certain blocks such as disability income.
P&C industry will return to sustainable growth: A.M. Best
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