A report from A.M. Best concludes that the Canadian insurance industry “continued to improve in 2010, exhibiting strong capitalization and favorable overall profitability, aided by Canada’s relatively strong economic recovery. Although the life insurance industry is on firmer ground, its risk profile has been raised by exposure to the weakening U.S. economy and uncertain global markets.”
In the P/C sector, Best pointed out that it “continues to address its underwriting challenges, but claims costs inflation, personal property weather-related losses and competitive commercial lines pricing have been dampening industry results and promoting overall soft market conditions.
“For Canadian life insurers, particular areas of stress include exposure to persistent low interest rates, volatile equity markets and shrinking demand for protection products.”
Best also selected the following significant factors affecting Canada’s insurance market:
* P/C financial results improved modestly in 2010, as pretax operating income increased.
* Accident-year combined ratios continued to deteriorate slightly.
* Competitive pricing and further deterioration in the Ontario auto market led to a third straight year of underwriting losses.
* Low interest rates are forcing Canadian life companies to set up additional reserves.
* The move to International Financial Reporting Standards was relatively smooth for life insurers, but uncertainty remains with implementation of Phase II.
* Segregated funds’ long-tail risks and proposed capital requirements have insurers focusing more on mutual fund sales.
Source: A.M. Best
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