What will change the P&C industry’s rosy outlook?
While 2023’s year-end results are largely good news for Canada’s P&C insurers, even those reporting good annual earnings have several reasons for concern, notes Alister Campbell, president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC).
He listed several potential stressors in his keynote address to brokers attending the Insurance Brokers Association of B.C.’s 2024 AGM and Leader’s Conference in June.
But there’s one thing that could be poised to spoil the party.
NatCats are costing P&C insurers more than $3 billion per year. As Campbell observed, that means Canadian primary P&C insurers bought twice as much reinsurance (at double the price) in 2024 than they did in 2013.
Plus, warns Grant Kelly, PACICC’s chief economist, “There is evidence of growing cost pressures in auto insurance markets in Nova Scotia, New Brunswick, Ontario and Alberta. In addition, insurance results in personal property insurance markets in Prince Edward Island, Nova Scotia, Manitoba and British Columbia are eroding the capital bases of insurers operating in these markets.”
Worries on the horizon?
Could average industry returns still be creeping up behind us?
Looking at particular industry sectors, MSA Research CEO Joel Baker notes in his MSA Quarterly Outlook Report Q4-2023 that the continued (costly) problem of auto theft and the increasing costs associated with more collisions and escalating repair costs; the decent returns in the reinsurance sector, despite another year of significant Cat losses; and how current successes in the commercial sector may come back to haunt.
Regarding reinsurance, the sector outperformed all others, despite more than $3.1 billion in cat losses in 2023.
Baker attributes this largely to high retentions by primary writers, likely due to the continued hard market in property Cat. Of course, when the water is wavy, if the bow rises the stern sinks. So, while reinsurers benefitted from high retentions, the personal and multi-lines writers took it on the chin.
For commercial lines, which showed “significant strength managing to remain ahead of Cats and claims inflation,” Baker warns of the “risk that competition will erode underwriting discipline in commercial lines given the healthy results.”
And 2023 proved to be another active one from an insured Cat perspective, with Catastrophe Indices and Quantification (CatIQ) recording an insured loss figure of more than $3.1 billion. The year falls in the top three costliest for insured Cat damage, behind 2016 and 2022.
Floods, wind and hail all contributed to the total, but wildfires in B.C. and Nova Scotia alone added a cool $1 billion. Almost $700 million in fire claims came from two fire events in B.C., nearly all the rest came from the Tantallon fire outside Halifax in late May and early June.
Related: Can Canada’s P&C insurers expect a return to the bad old days?
In 2023, climate change seemed to have chomped down a bit harder, around the world and in Canada.
Globally, the ten hottest years on record all occurred in the past decade, with 2023 being the warmest year since record-keeping began. Last year, Earth exceeded 1.5 degrees Celsius of average warming for the first time. This is huge given the annual average temperature of the planet throughout the 20th century was 13.9 degrees Celsius.
Canada is warming at about two-times the global rate, and the Arctic is warming at about three-times the global rate.
Not coincidentally, we saw the worst wildfire season for area burned on record, with about 17.2-million hectares burned (the 10-year annual average is 2.7 million). This annihilated the previous area burned record of 7.6 million hectares set in 1989. The Canadian Interagency Forest Fire Centre remained at National Preparedness Level 5 (the highest) for a record 120 days in 2023. The previous record was 55 days in 2017.
Related: What Canada’s P&C insurers need to watch in 2024
Along with direct fire-related losses, more than 7,100 fires delivered thick, acrid smoke to several major Canadian and northeastern U.S. cities, bringing home the impacts of events occurring hundreds, even thousands of kilometres away.
A record 23 insured catastrophes were declared in total in 2023 (i.e., events of $30 million in claims or higher as per CatIQ). The previous record was 15 events, which happened in 2017 and again in 2022. July and August 2023 alone saw more declared catastrophes than Canada has previously seen in an entire year.
Interestingly, fires burning near Yellowknife came close to being booked as an insured Cat, not because of structure loss but because of the sum total of Additional Living Expense claims for those under evacuation orders for close to a month. This is the new reality.
Glenn McGillivray is the managing director of the Institute for Catastrophic Loss Reduction. This article is excerpted from one appearing in the June-July 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/Ekaterina Rekina
