A new commentary from DBRS Morningstar, Strong Underwriting and Investment Performance Driving Canadian P&C Insurer Profitability; Outlook Remains Supportive, published Dec. 9, states that the ratings firm expects current favourable trends in underwriting profitability experienced since the onset of the pandemic, will continue into 2022, thanks to lower claims frequency in automobile insurance and a favourable pricing market.
“DBRS Morningstar expects that the Canadian P&C insurers’ results will remain resilient in 2022, driven primarily by below-average auto claims as a result of some level of social distancing and work-from-home measures still in place for most of the year,” says DBRS Morningstar’s vice president of insurance, Victor Adesanya.
Floods in British Columbia
The overview of property and casualty (P&C) industry results for the last 21 months highlights the potential adverse effect that recent floods in British Columbia could have on earnings in the fourth quarter of 2021 and potentially in the first quarter of 2022. They add that P&C insurer’s profitability going forward will also depend on the frequency and severity of weather-related events in 2022. In commercial insurance, meanwhile, current hard market conditions are expected to continue but may ease in the second half of 2022 “as the forces of supply and demand start to affect pricing.”
Increase in driving activity
Looking back, they say strengthening North American equity markets positively affected results as of the third quarter in 2021. Going forward, they say the removal of social distancing and movement restrictions could trigger an increase in auto claims frequency, potentially affecting results in the medium term. “The increase in driving activity so far in 2021 may not be significant enough to make an impact on this year’s automobile results, yet it could affect 2022 results,” they write.
Overall, the industry’s aggregate net income, excluding net income from the Insurance Corporation of British Columbia, was $6.5-billion in 2020, an increase from $4.2-billion in 2019. This was driven by favourable underwriting and positive equity market valuations. “So far, 2021 results are tracking better with 9M 2021 aggregate net income of $7.6-billion, compared with $3.2-billion as of 9M 2020,” the report states.
