Ratings agency AM Best has published its most recent market segment report concerning the Canadian property and casualty (P&C) industry, saying results in 2023 were favourable, despite persistent headwinds. They say the level of catastrophe activity in 2024, which will likely lead to another year of record losses, remains manageable for insurers.
Geopolitical risks
“Rising catastrophe risks, as well as macroeconomic and geopolitical risks, remain a key consideration that may impact the segment. Additionally, the rise of secondary perils will also have an impact on pricing and terms and conditions,” the ratings agency states in its report, Canadian Property/Casualty: Stable Despite Rising Cat Events and Persistent Market Challenges.
The agency also notes that it is maintaining a stable outlook for Canada’s P&C industry, thanks to the industry’s strong operating results, favourable combined ratios, growth in insurance service revenue and improving investment returns. Canada’s stable regulatory environment, company’s risk management practices and moderating levels of inflation also helped the Canadian insurers’ ratings. This is despite growing frequency and severity of extreme catastrophic weather events, continued increases in reinsurance coverage costs and ongoing pressure in the personal auto lines business.
“Canada’s P&C insurance industry managed to achieve favourable financial results, with net income up an astonishing 77.5 per cent from $4-billion in 2022 to $7.1-billion in 2023,” says AM Best director, Rosemarie Mirabella. “Profitability was driven by growth in underwriting income and a resurgence in investment income, partially counterbalanced by rising finance expenses from insurance contracts, as well as general and operating expenses.”
Double-digit equity growth
Overall, they say personal property, auto liability and commercial property, the three largest lines by insurance revenue in 2023, all reported strong underwriting gains. Reinsurance renewals in 2024 were also orderly, they say. Additionally, they say the industry has enjoyed a notable increase in equity, which rose 39.2 per cent between 2019 and 2023. “Double-digit equity growth of 11.1 per cent was a highlight for the industry in 2023,” they write. “The rise in equity, despite the increase in dividends, reflects the industry’s solid financial performance and is seen as credit positive.”
They add that despite interest rate cuts, assuming stable economic conditions, insurers are likely to experience solid investment returns in 2024, as well.
