In an analysis, credit rating agency Morningstar DBRS commented on the strong performance of four major Canadian property and casualty (P&C) insurers in the second quarter and first half of 2024. This period was marked by strong underwriting results, successful investments, significant growth in premiums written, and adequate return on equity. 

The rating agency’s commentary, entitled Strong H1 2024 Results for Canada's P&C Insurers Underpinned by Underwriting and Investment, was published on August 28. It notes that the four public companies analyzed – Intact Financial Corporation, Fairfax Financial Holdings, Trisura Group, and Definity Financial Corporation – benefited from a favorable pricing environment and low impact from natural disaster losses. 

"Looking ahead, we expect the favorable pricing environment to remain; however, natural catastrophe losses may start to affect earnings. We believe the recent wildfires and flooding in Canada will remain as earning events and not invade capital for the companies given their strong earnings in H1 2024," said Victor Adesanya, Vice President, Global Insurance & Pensions Ratings. 

"We expect premium rates to continue increasing in the short to medium term because of inflation, higher reinsurance costs, and catastrophic insured losses," he added. 

All four companies maintained combined ratios below 95 per cent and posted strong top-line growth in Q2 2024, particularly in personal insurance lines (auto and home). 

Trisura recorded the best combined ratio among the four over a 12-month period, despite a slight uptick in the most recent quarter. This performance is attributed to its focus on specialized niches, which generally allow for more flexible pricing and lower claims. 

“The sustained high-interest-rate environment continues to benefit the insurers with maturing investments that are being replaced with higher-yielding securities, while maintaining a conservative portfolio mix,” the agency notes. 

The environment is also favorable for adequate pricing of commercial risks in most segments of commercial property insurance. In personal lines, the report highlights that both Intact and Definity achieved growth of over 10 per cent in auto and home insurance. 

However, it is noted that auto insurance pricing is regulated by provincial governments, which can lead to delays between requested rate increases and their implementation. No such regulatory mechanism exists for home insurance. 

Intact and Definity hold larger shares of the Canadian market compared to the other two companies analyzed. They benefited from a low number of major claims, recording lower combined ratios in Q2 – a period typically marked by floods and wildfires. 

However, the agency warns that the Jasper wildfire in Alberta and major floods in Toronto will impact underwriting results in the second half of 2024. 

Morningstar DBRS also analyzed the investment income of the four insurers, noting significant growth for Fairfax in this area. “Fairfax reported the most significant growth over the period compared with the other insurers. We believe this is due to the strategic net purchase and holding of U.S. treasuries. Fairfax held a very short-duration investment portfolio in 2021 prior to the rapid rise in global benchmark interest rates. This allowed it to quickly take advantage of the increase in interest rates by investing in highly rated fixed income securities at higher yields,” the agency explains. 

Regarding capital adequacy, Intact, Definity, and Trisura reported Minimum Capital Test (MCT) ratios above 200 per cent as of June 30, 2024, well above the 150 per cent supervisory target set by regulators. For Fairfax, its main Canadian subsidiary, Northbridge, had a MCT of 253 per cent for Q1 2024. 

Morningstar DBRS upgraded the credit ratings of Fairfax and Intact, along with their operating subsidiaries, in the second half of 2023, with both now holding stable outlooks. The agency has maintained stable credit ratings and outlooks for Definity and Trisura since their last review.