Why Intact Financial’s CEO says insurance market cycles aren’t ‘dead’

Property and casualty insurance market cycles are by no means ‘dead’ — not because of insurers’ competitive behaviour, but because claims cost shocks often trigger the need to shore up pricing, according to Intact Financial Corporation CEO Charles Brindamour.

Brindamour was responding to a question in a fireside chat last week with Doug Young, a financial services analyst with Desjardins. Young was asking questions about Intact’s 2023 Q3 financial results.

“It just feels like the property casualty insurance cycle is dead,” Young observed. “As you look out over the next 10 years, versus the last 10 years, is the duration of a cycle gapped out, or is the cycle not a thing anymore? Is there is there going to be more stability moving forward?”

“I do think it’s important to understand [that cycles are] not just about supply-and-demand,” Brindamour answered. “The cycle is often triggered by cost, and cost can be [caused by] external shocks [such as inflation]…

“Capacity leaves the industry not because of the supply-and-demand imbalance but because all of a sudden people realize that pricing is inadequate because of cost shocks, as opposed to [an] excessive price drop on the grounds of competitive behaviors. And because cost is a big portion of what drives the cycle, I do think that cycles are not dead.”

Inflation is escalating claims costs throughout all lines of business — catastrophes, auto, home and commercial lines, Brindamour said. Also, the cost of reinsurance is going up, adding to insurers’ costs.

Young asked Brindamour if rising interest rates would produce better bond yields for P&C insurers going forward. Hypothetically, that means insurers could use the improved investment income to shore up any gaps in pricing going forward.

“I’d be curious on your views, especially in light of [the fact that] we are going to get a rising interest rate environment and therefore more yield coming through,” Young asked Brindamour. “Is that going to crack the cycle?”

“Yes, [bond] yields are up,” Brindamour responded. “But [the improved investment income is] not a huge driver compared to the other [cost] pressure points that I’ve just laid out. And so, when I look out, I see hard market in commercial lines continuing for at least 12 months.”

Looking ahead over the next decade, Young questioned whether talk of hard and soft market cycles in the P&C insurance industry is relevant anymore. The current hard market in Canadian P&C insurance, characterized by higher premium rates, higher deductibles and reduced capacity, has lasted almost three years. It followed a soft market cycle (lower rates, deductibles and higher capacity) of at least a decade.

Brindamour noted mergers and acquisitions over the next decade could, theoretically, reduce the amplitude of the price increases and decreases during hard and soft market cycles.

“The factor that could reduce the amplitude of the cycle, in my mind, is consolidation,” he said. “If you bring a bigger portion of the market in the hands of consolidators, who hopefully are better operators, then in theory,” he explained, pricing cycles would even out and not be as sharply up or down. “But it’s not a given that could be a factor to reduce the size of the cycle.”

Feature photo courtesy of iStock.com/mechichi