Despite inflation easing, Intact expects ongoing hard market

Despite lower inflation, Intact Insurance is nevertheless predicting an ongoing hard market in Canada in 2023 because of higher reinsurance rates and elevated natural catastrophes.

“Looking at the [Canadian P&C insurance] industry, we see hard market conditions continuing, given rising reinsurance costs, elevated Cat-level losses and inflation pressures,” Intact Financial Corporation CEO Charles Brindamour commented during a conference call about the company’s 2022 Q4 results.

“Our business remains well-positioned to deliver a sustainable, low 90s [combined ratio] or better performance [in 2023].”

In Canada, the company reported 2022 Q4 combined ratios of 95.8% in personal auto lines, 76.9% in personal property lines and 89% in commercial lines.

During the call, Brindamour observed inflation rates decreased from 13% in 2022 Q3 to 11% in 2022 Q4.

That said, Intact still expects firming rates in both personal lines auto and property rates.

“In personal property, this business continues to demonstrate great resilience in the face of increasingly frequent and severe weather events,” Brindamour said. “The combined ratio was 76.9% in the fourth quarter [of 2022], 90.1% for the full year, and has averaged sub-90% over the last five and now 10 years, [regardless of] whether sharply higher reinsurance costs are driving hard market conditions.

“We expect rate increases to remain in the high-single-digit range and keep pace with loss-cost trends.”

Louis Marcotte, the company’s CFO, noted Intact has changed its guidance for reserving for Cat losses in 2023 from $600 million to $700 million.

Intact’s “Canadian [Cat] losses in the quarter were $167 million,” Marcotte noted, “driven largely by windstorms in Canada and severe winter weather in the U.K. This figure is higher than the $143 million dollar estimate we announced in early January, reflecting a number of late claims notifications and higher costs per claim than expected in respect of the U.K. freeze event…

“This takes total Cat losses for the year to $826 million, [which is] above our $600 million expectations. With these results in mind, we are increasing our annual Cat guidance to $700 million.”

In personal lines auto, reduced inflation has caused the prices of auto parts to decline, as well as a reduction in the valuation of cars, which in turn impacts how many rental cars are required for total losses, Marcotte observed.

“We had a prudence reserving approach at the beginning of the pandemic because of uncertainty and will continue to do so, because there is still uncertainty around where inflation will go exactly,” Marcotte said. “We’ve seen very good signs of reduction in inflation, from 13% in Q3 to 11% in Q4. The drivers of [decreasing inflation on claims cost] reduction are as we expected — on car parts, on market values [for vehicles]. We see this is slowing down.”

However, the decline in auto claims inflation, which Brindamour said is continuing into the first part of 2023 Q1, is expected to be offset by a rise in claims frequency in personal auto, he stated.

Brindamour noted auto rates have increased by 2% year-over-year.

“We expect the deceleration [of claims inflation] to continue in the coming months,” he said. “On the frequency front, the number of accidents continues to be benign relative to pre-pandemic levels, even though it was up from the prior year. Our run rate assumes frequency will gradually increase in the coming months.”

Feature image courtesy of iStock.com/DNY59