canadian property/casualty insurance industry · 2018-09-07 · canadian property/casualty...
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Canadian Property/Casualty
Insurance IndustryRaymond Thomson, CPCU, ARe, ARM
Associate Director
Gordon McLean
Senior Financial Analyst
A.M. Best Annual Insurance Market Briefing CanadaSeptember 5, 2018
Canadian P/C Market Segment Outlook Is Stable
Canadian Life Ins - Insurance Market Briefing Canada 2
• Outlook has been stable over the long term
• Capitalization remains solid
• Operating performance remains profitable in the
headwinds of weather-related pressures
• Rating outlook indicates limited positive or negative
rating actions, which would be specific to companies
rather than industry conditions
Interactive Rating Distribution
3
100 100 100
109 108 108103 101 101
-
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016 2017 2018*
Nu
mb
er
of
Rati
ng
s
Superior Excellent Good Fair
Canada Property/Casualty – Interactive Ratings Distribution (2010-2018*)
*Through June 30, 2017. All other years, as of year end.
Source: A.M. Best data and research
Market Share
Canadian P/C Market Share - Top 10: 2017
C$ Billions
RankGroup / Company DPW % of Industry Total
1 Intact Group 8.5 15.5%
2 Aviva Group 5.3 9.7%
3 Desjardin Group 4.5 8.2%
4 Co-operators Group 3.1 5.6%
5 Lloyds Underwriters CAB 3.0 5.6%
6 TD Insurance Group 3.0 5.5%
7 Wawanesa Mutual Insurance Company 3.0 5.4%
8 RSA Group 2.9 5.3%
9 Economical Group 2.3 4.2%
10 Travelers Group 1.6 2.9%
All Other 17.6 32.2%
Industry Total 54.7 100.0%
4
Source: A.M. Best data and research
Combined Ratio
5
69.9 69.5 66.9 67.1 64.4 68.3 66.3 63.2 65.6 63.9
30.7 30.1 30.6 30.6 31.331.4 31.7
32.232.5 33.2
100.6 99.697.5 97.7 95.7
99.7 98.095.4
98.1 97.1
-
20.0
40.0
60.0
80.0
100.0
120.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Perc
en
tag
e
Underwriting Expense Ratio Loss and Loss Adjustment Expense Ratio
Combined Ratio Components
*Excludes Lloyd’s and ICBC
Source: A.M. Best data and research
Operating Ratio
6
90.3 90.588.5
90.388.4
93.190.3 89.8
91.9 92.3
100.6 99.697.5 97.7
95.7
99.798.0
95.498.1 97.1
50.0
60.0
70.0
80.0
90.0
100.0
110.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Perc
en
tag
e
Operating Ratio Combined Ratio
Operating Ratio Components
*Excludes Lloyd’s and ICBC
Source: A.M. Best data and research
Net Investment Income vs. Yield
7
2.3
2.9
2.22.5
1.9
2.7
3.2
2.2
2.5
2.1
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2013 2014 2015 2016 2017
Net In
vestm
en
t Yie
ld (%
)N
et
Inv
estm
en
t In
co
me
(C$ B
illio
ns)
Net Investment Income(C$ Billions)
Net Investment Yield(%)
Net Investments Income Vs. Yield
*Excludes Lloyd’s and ICBC
Source: A.M. Best data and research
Auto Loss Trends
8
76.9
74.2
67.5
62.3
67.366.3
79.3
88.189.6
79.2
69.5
71.3
72.5
76.7
80.5
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
2013 2014 2015 2016 2017
Lo
ss R
ati
o (
%)
Auto - Liability Auto - Personal Accident Auto Other
Canada Property/Casualty – Private Auto Insurers Loss Ratio Trend (2013-2017)*
*Excludes Lloyd’s and ICBC
Source: A.M. Best data and research
Largest CAT Losses
9
Canadian P/C - Catastrophe Losses Greater than CAD 300 Million (1991-2017)
Year Date Location Event Loss & LAE Current Dollar
Incurred Losses (C$ Million)
2016 May Fort McMurray, Alberta Fire 3,753 3,910
1998 January Quebec, Ontario, New Brunswick Ice Storm 1,574 2,313
2013 June Alberta Flooding 1,599 1,745
2013 July Toronto Flooding 924 1,008
2005 August Ontario Tornado/Hail 625 784
2014 August Alberta Hail/Windstorm 546 583
2011 May Slave Lake, Alberta Fire 528 591
2012 August Calgary and Southern Alberta Hail/Windstorm 521 576
2010 July Calgary and Southern Alberta Hail/Windstorm 487 560
1991 September Calgary and Southern Alberta Hail/Windstorm 343 554
2016 July Alberta, Manitoba, Ontario, Saskatchewan Hail/Windstorm 462 481
2009 July Calgary and Southern Alberta Hail/Windstorm 376 440
2005 June Alberta Flooding 300 376
Source: A.M. Best data and research, IBC
Property Loss Trends
10
78.1
66.7
60.0
74.6
66.3
72.8
64.1
54.8
60.559.3
50.0
55.0
60.0
65.0
70.0
75.0
80.0
2013 2014 2015 2016 2017
Lo
ss R
ati
o (
%)
Commercial Property Personal Property
Canada Property/Casualty – Property Insurers Loss Ratio Trend (2013-2017)*
*Excludes Lloyd’s and ICBC
Source: A.M. Best data and research
Canadian Composites – Net Earned Premiums
11
Canadian Net Earned Premium By A.M Best Composite – 2017
Composite Net Earned Premium Combined Ratio
Total Canadian Aggregate Auto 25,341 100.9
Total Canadian Aggregate Other 6,063 98.7
Total Canadian Aggregate Comm Cas 5,453 89.0
Total Canadian Aggregate Property 3,807 97.6
Total Canadian Aggregate Reins 1,410 74.8
Total Canadian Aggregate Finan Lns 1,293 47.7
Canadian Composites – Net Earned Premiums
12
-
5
10
15
20
25
30
35
-
5,000
10,000
15,000
20,000
25,000
30,000
Total CanadianAggregate Auto
Total CanadianAggregate Other
Total CanadianAggregate Comm
Cas
Total CanadianAggregate Property
Total CanadianAggregate Reins
Total CanadianAggregate Finan
Lns
Dev
elo
pm
en
t as %
of N
EPN
EP
(C
AD
, M
illio
ns)
Net Earned Premiums 1 Year Favorable Development
Canadian Net Earned Premium By Composite - 2017
Source: A.M. Best data and research
Canadian Composites – Loss and LAE
13
-
5
10
15
20
25
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Total CanadianAggregate Auto
Total CanadianAggregate Comm
Cas
Total CanadianAggregate Other
Total CanadianAggregate Property
Total CanadianAggregate Reins
Total CanadianAggregate Finan
Lns
Dev
elo
pm
en
t as %
of R
eserv
es
Lo
ss a
nd
LA
E R
eserv
es (
CA
D,
Millio
ns)
Loss and LAE (Millions) 1 Year Favorable Development
Canadian Loss and LAE Reserves By Composite - YE 2017
Source: A.M. Best data and research
Segment Outlook – Canadian Property/Casualty
14
Headwinds Tailwinds
Catastrophes – increasing frequency and severity Solid balance sheet positions
Challenges remain within the auto line, Ontario specificallyProfitable operating performance / consistently stable combined
ratios
Escalating discussion of the need for auto reforms Ongoing advancement in underwriting technology
Market competition despite rate increases Economic growth
Continued investment pressures – places pressure on
underwriting
Sustained top line premium growth - DPW up 3.5%, NPW down
1.1%
High quality investment holdings
Strong reinsurance programs
Favorable reserve development patterns
Solid capitalization has been achieved through retained earnings, while underwriting performance has remained
profitable over the long term despite the challenges associated with an increased frequency of natural catastrophe
losses. Many carriers are increasingly utilizing technology to enhance underwriting platforms. Maintain stable market
outlook.
Emerging Issues and Potential Opportunities
15
Cyber Insurance
Flood
Sharing Economy
Cannabis
InsurTech
US Tax Reforms/Tariffs
Canadian Life Ins - Insurance Market Briefing Canada September 6, 201716
Global Views on Reinsurance
Global Reinsurance Market Trends
17
Overall in 2017 – most significant year for losses since 2011 -catastrophes amounted to earnings events, as rated balance
sheets emerged flat for the year.
Hurricane Harvey, Irma, Maria combined with EQ in Mexico and Wildfire in California produced industry losses in the range of
USD 80 to 100 billion.
Alternative capital investors were NOT hindered by the losses and brought additional capacity to the market for the renewals.
Global Reinsurance Market Trends
18
55.9% 56.2% 56.2% 60.6%
76.5%
61.1%
31.9%33.5%
34.2% 34.7%
33.6%
33.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
20%
40%
60%
80%
100%
120%
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio Loss Ratio Loss Reserve DevelopmentSource: A.M. Best data and research
Combined Ratio (2013 to present) and Five-Year Average
Global Reinsurance Market Trends
19
13.0%
11.6%
9.5%
8.3%
-0.3%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Return on Equity (2013 to present) and Five-Year Average
Source: A.M. Best data and research
Global Reinsurance Market Capacity
20
Source: A.M. Best data and research
Ranked by unaffiliated gross premium written in 2017
Top 10 Global Reinsurance Groups: Non Life
Munich Reinsurance Group
Swiss Re Ltd.
Berkshire Hathaway Inc.
Lloyd’s
Hannover Ruck SE
SCOR S.E.
Everest Re Group Ltd.
CL Group plc
Transatlantic Holdings, Inc.
PartnerRe Ltd.
Top 10 Global Reinsurance Groups: Life
Munich Reinsurance Group
Swiss Re Ltd.
Reinsurance Group of America Inc.
SCOR S.E.
Hannover Ruck SE
Great West Lifeco
Berkshire Hathaway Inc.
Pacific LifeCorp
PartnerRe Ltd
Assicurazioni Generali SpA
Global Reinsurance Market Capacity
21
292 320 340 332 345 345 362
19
48 60 68
75 87 100
2012 2013 2014 2015 2016 2017 2018E
ConvergenceCapacity
TraditionalCapacity
Estimate for Total Dedicated Reinsurance Capacity (USD billions)
Source: Guy Carpenter and A.M. Best
Market Landscape ~10 Years In Time
22
Fidelis
Greenlight Re
Hamilton
Harrington Re
Third Point Re
Watford Re
Ariel Re
Flagstone
Harbor Point / Max (Alterra)
IPC Re
Montpellier
New Castle Re
Paris Re
Platinum Re
Allied World
Endurance(Sompo Intl)
General Re
MS Amlin
Odyssey Re
National Indemnity
Partner Re
Tokio Millennium Re
TransRe
Validus
XL Catlin
Arch
Aspen
AXIS
Everest
Hannover Re
Lloyd’s
Munich Re
RenaissanceRe
SCOR Re
Swiss Re
Surviving Franchises of
Today
Sheltered Franchises
Franchises That Are Gone
What Does The Future Hold?
The Case for M&A
23
Broader product capability
Broader geographic reach
Greater influence
Greater attractiveness to alternative capital
Opportunity for growth
Alternatively…
M&A is the
result of a
strategic
opportunity
Alternative Capital
24
Market is still largely
influenced by global leaders
M&A will continue
Alternative capital is driving change
Alternative capital is driving a
great deal of structural change
in the market
However, the market continues
to be heavily influenced by the
global reinsurance leaders
Segment Outlook – Global Reinsurance
25
Headwinds Tailwinds
Intense competition Cession rates increasing
Increasing interest from third party capital Cat losses temporarily stabilize rates
Earnings stabilize but remain under pressure Favorable reserve development, but waning
Excess capacity hinders further improvement Strong risk-adjusted capital
Potential for increased inflation Increase in interest rates
M&A
Although capitalization remains strong and rate deterioration temporarily halted, pressure on margins continues. Over
the intermediate term, returns for some reinsurers will fall short on a risk-adjusted basis. Maintain negative market
outlook.
Canadian Life Ins - Insurance Market Briefing Canada September 6, 201726
Q&A
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