According to forecasts by the Morningstar DBRS agency, published on December 11, Canadian property and casualty insurers will benefit from favorable conditions in 2024. The insurers’ prospects are generally considered stable.
The increase in natural disasters in 2023 has created additional demand for insurance coverage needs, which creates a favorable environment for tariff adjustments.
The current cycle of tightening underwriting conditions (hard market) will still be present, as will the volatility of inflation, higher reinsurance costs, and the increase in climate-related catastrophic events, note the authors.
Rising interest rates weigh on the economy, which limits the extent of tariff increases that insurers can impose. The agency believes that policymakers will need to resolve the equation that allows maintaining a balance between the solvency of insurers and the paying capacity of the insured.
It becomes necessary to adopt measures to mitigate exposure to climatic disasters. If nothing is done in this regard, the authors of the note believe that insurance accessibility will be reduced, creating an unstable economic environment. All this will weigh on the solvency of insurers and their credit rating.
Morningstar DBRS notes that out of the five Canadian property and casualty insurers whose credit rating it monitors, three saw their rating improve in 2023: Intact Financial Corporation, Definity Financial Corporation, and Fairfax Financial Holdings, which operates Northbridge Insurance.
The agency expects investment revenues to increase in 2024, as insurers reduce their volume in bonds and allocate more resources to assets offering higher margins. This will allow reducing, without eliminating, the recourse to tariff increases.
The note also recalls that several provincial governments in the country have imposed limits on tariff increases in auto insurance. Since spring 2022, inflation has created upward pressure on claim costs. It is noted that car rental costs claimed while the insured vehicle is being repaired or replaced were 67% higher in the third quarter of 2023 compared to pre-pandemic costs.
In home insurance, even after the observed slowdown in inflation over the various quarters of 2023, reconstruction costs are 56% higher than they were compared to the last quarter of 2019. The agency notes that the average premium increases in 2022 and 2023 remained below 10%. Consequently, it estimates that the current pricing does not yet reflect the increase in claim costs and that catch-up must continue.
Morningstar DBRS experts do not expect a relaxation of reinsurance conditions in 2024, which will contribute to maintaining the hard market both in property damage insurance and in business insurance. Consequently, insurers will have to allocate a larger part of their capital to cover their own risk exposure. The cost of financing these capacities is also rising due to the increase in interest rates.
At AM Best
At the AM Best agency, in the end-of-year 2023 edition of its monthly bulletin on the insurance industry in the United States, analyst Anthony Bellano also notes the increase in the number of claims resulting in billion-dollar claims.
In the text on climate, the disaster caused by the fires that struck Lahaina, on the island of Maui in the Hawaiian archipelago, is recalled. The increase in the number of natural disasters has prompted the agency to revise the market outlook for home insurance in the United States from “stable” to “negative”.
Every year since 2016, the combined ratio of property and casualty insurers in the United States has exceeded 100%, except for one year. Consequently, operating results have been in the red every year since 2017, with one exception.
AM Best’s consulted experts still expect an increase in reinsurance rates in property damage insurance in 2024. It is also observed that the increase in insurable values impacts the risk exposure covered by insurers. They have responded by many leaving California and Florida, heavily affected by climatic disasters. The governments of these states have imposed additional constraints on insurers in terms of pricing.
In a survey conducted by AXA on risk trends, insurers express their constant concerns about the impact of cybercrime on the economy. After a certain slowdown in ransomware attacks observed in 2022, criminal activities picked up again in 2023.
According to agency expert Sridhar Manyem, this decline in 2022 was attributable to Russia’s invasion of Ukraine. He estimates that cyber pirates have resumed their normal pace of activities.
Appointments
Among insurers, there have been changes at the head of two of Canada’s largest property and casualty insurers. At Aviva Canada, in the first case, Jason Storah returned to London while Tracy Garrad replaces him.
At Intact Insurance, Anne Fortin was appointed president in a new position created for her.
At the Insurance Bureau of Canada, Celyeste Power took office at the beginning of 2023 as CEO, following the retirement of Don Forgeron.
Insurance Fraud
The year 2023 was marked by a resurgence of vehicle theft in Canada. As early as October, Équité Association predicted a record year based on figures from the first half of 2023. The organization specialized in fighting insurance crime announced the launch of the ÉQ Insights platform last November. All member insurers will have access to the platform in January 2024. It remains to be seen whether the new data analysis capabilities will allow insurers to better combat organized crime.
Year after year, the vehicles most coveted by thieves are the same, Équité Association reported in November. At the end of the summer, the organization urged Transport Canada to adopt a standard requiring car manufacturers to include an anti-theft system in all new vehicles. Discussions continue with the federal government, Équité Association tells Insurance Portal.