S&P: Rising Claims, Competition Squeeze Canadian P/C Insurers

“Lack of premium growth nationwide and diminished results in the Ontario auto segment restrained results for Canadian property and casualty insurers in the past year,” according to a newly published report from Standard & Poor’s Ratings Services.

The study – “Industry Report Card: Canadian Property and Casualty Insurers Face Deteriorating Results Due To Ontario Auto Segment” – notes that although 2007 results were good, “a number of factors persist that will play a part in dragging down industry results throughout 2008 and beyond. These include declining premium growth rates, deteriorating results in Ontario auto, increasing weather-related conditions, and intense pricing pressures in commercial lines.”

S&P also indicated that in addition to the extremely competitive environment, Ontario’s auto insurers “face obstacles from regulations that govern the pricing and availability of the product. Due to legislation, even if costs are rising, insurers must get approval for any rate increases. Not being able to control pricing more freely continues to be a huge negative for this industry. Moreover, they must also provide availability for all consumers, no matter what their risk profile is.”

S&P credit analyst Foster Cheng explained: “This segment, which represents about 27 percent of total industry premiums, continues to represent a large portion of industry totals; as such, the success or failure of this product will weigh heavily on the direction of the industry. Because the overall industry depends so heavily on this product, it is vital for industry to control these costs and/or raise rates.”

S&P added, however, that, “despite these challenges, industry participants continue to be well capitalized, which should allow them to withstand the softness of this cycle and the pressures of rising claims experience.”

“We believe the industry will continue to experience deterioration for at least another two to three years before hitting the bottom and recovering,” Cheng noted.

Source: Standard & Poor’s – www.standardandpoors.com