How four P&C insurers closed out 2022

Four of Canada’s publicly-traded insurance companies — Intact Financial Corporation, Definity Financial Corporation, Fairfax Financial Holdings Limited, and Trisura Group — reported strong underwriting performance and “very good” combined ratios for the final quarter of 2022, DBRS Morningstar says in a new commentary.  

The ratings company says the insurers will be well-positioned going into the fiscal year 2023.  

The results reflect a favourable insurance pricing environment—with premium rates continuing to increase for most P&C insurance products globally—even despite the impact of catastrophe losses.  

For example, Intact previously reported an estimated $77 million pre-tax in catastrophe losses during the last quarter of 2022, mostly caused by late December windstorms across eastern Canada, as well as further development of losses from earlier in the year. 

Definity’s combined ratio of 91.7% in the fourth quarter of 2022 and its full year combined ratio remained solid at 94.1%, the company recently reported. 

Definity demutualized in late 2021. “We built a business model where we think that we can grow at about twice the rate of the industry, so on average, a 10% growth rate, and to do so in the mid-90s [combined ratio],” CEO Rowan Saunders said of the company’s post-demutualization plan, during a webcast in fall 2022.  

Fairfax owns 26 P&C insurers and reinsurers globally, including its Canadian subsidiary, Northbridge General Insurance, which operates from Toronto. Its earnings benefitted from the sale of its pet insurance business, DBRS says. Its earnings were still improved from a year ago, excluding the sale.  

Net investment income improved for three companies, with the exception of Trisura. The group was affected by a one-time $64.4 million (tax affected) writedown of reinsurance recoverables, which resulted in a consolidated quarterly net loss of $40.3 million for 2022 Q4. However, Trisura was profitable for the year, “and has seen very good business momentum excluding the one-time writedown,” DBRS notes.

The companies all reported resilient underwriting performance for 2022 Q4, resulting in combined ratios well below 100% (both quarter-to-date and year-to-date). 

The results were also positively affected by prior-year claims reserve developments, the ratings agency reports. “We expect premium rate increases to continue to exceed inflation, driven in part by the prevailing hard market conditions, rising reinsurance rates, and the potential effects of climate change, which have increased the frequency and severity of natural catastrophe losses.” 

The four companies are well positioned heading into 2023, and higher interest rates will benefit the insurers’ net interest income, which have been increasing year-over-year. 

DBRS expects the underwriting results to be positive, despite potential climate-related catastrophe losses in 2023. With the market being able to generate significant premium increase, the pricing environment remains favourable, the agency says. 

Currently, DBRS says Definity, Fairfax and Intact have “positive” rating outlook trends, while Trisura’s trend is “stable.” 

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