Editor’s Note: This release corrects an earlier release in which it was suggested that Intact CEO Charles Brindamour was predicting the onset of a weak market cycle for the Canadian P&C insurance industry, when in fact he was supporting the opposite (that difficult market conditions would persist, because the industry experiences a number of “headwinds” that favor difficult market conditions). Canadian Underwriter apologizes for the error and any misunderstanding or confusion this may have caused.
The P&C market is still tough and Intact CEO Charles Brindamour sees a number of favorable conditions for a tough market for the foreseeable future, he said in a fireside chat at the National Bank of Canada Financial Services Conference.
“If you look at the headwinds that the industry is battling to some extent…overall, they’re generating a continuation of the hard market,” Brindamour said. And he expects these conditions (which include inflation, the cost of reinsurance and natural disasters) to continue for the foreseeable future.
Speaking of these factors supporting the persistence of the hard market, Brindamour noted that signs of relief from high inflation are on the horizon. But it is not enough to say that insurers are off the hook.
“Inflation…is not [occurring] to the same degree [in] auto insurance, but you’re still easily in the mid-single digit zone, especially when it comes to ownership,” he said. In personal auto, Intact’s rate increases are in the high single digit range.
“Keep in mind that there is seasonality, especially during the winter months,” Brindamour said of auto premiums. “But there are a number of moving parts here that need to be understood. We expect the gravity to decrease as we observed towards the end of 2022. We expect this to happen in 2023, and so far so good.
“Indeed, with written rates in the upper single digit range – obviously we’re already below 95 [combined ratio] in terms of execution rate [which predicts future financial performance assuming current conditions remain the same] — so clearly with inflation falling and rates rising, it gives us a good degree of confidence in the forecast.
“Frequency or number of [auto] claims, is lower than what we assess at this time,” Brindamour said. “Our forecast expects the frequency to increase. That is to say, to some extent, if the severity were not to ease at the speed we expect, we have a bit of a buffer in terms of inflation.
The cost of reinsurance is also contributing to difficult market conditions for Canada’s P&C insurers, Brindamour said.
“[The cost of reinsurance] is really important in trade lines for most players and is up 25+%. It happened overnight on January 1,” Brindamour said. “We anticipated this after the July renewals of last year for reinsurance. And I think the market is slowly starting to digest the fact that prices are up and retentions are also increasing significantly.
In addition, natural disasters affected commercial lines as well as personal property lines. “These three headwinds will clearly maintain a very healthy pricing environment in commercial lines,” Brindamour predicted.
What are some of the markers the company looks at when assessing a potential change in the market cycle?
The profitability of the industry and new capital are starting to show up, he observed.
“The profitability of the industry [in Canada] has been quite good, somewhat supported by a lower frequency in motor insurance,” he said. “A few years of strong profitability in the industry tends to be the leading indicator.”
The arrival of new capital on the market could also indicate signs of a change in the cycle.
“Amazingly, new capital is coming into the market, especially in distribution – especially with MGAs – and that is something that could alleviate, to some extent, the hard market.”
Interest rates may also point to a market slowdown.
“A lot of people say, ‘Well, interest rates are up, you have more earning power,'” Brindamour explained. “That’s true, but even if, at an industry level, rates increase significantly, relative to, say, book yields, I don’t think it’s worth much more than a ratio point and a half. combined.
“I think headwinds [favouring a hard market] I have identified… are larger and therefore I expect this [hard market cycle] persist in. »
For Intact, Brindamour anticipates a solid performance over the next year.
“Our outperformance position is really good,” he said. “Our performance in commercial and personal insurance, but especially in commercial insurance, is very solid. A tough price environment with very strong outperformance ahead is, in my view, a great position to be in.
Featured image by iStock.com/koto_feja