P&C Industry Steady but Companies Must Consolidate

Published: December 13, 2016

Updated: July 24, 2018

Author: Luke Jones



Canada’s property and casualty (P&C) is in solid health according to Moody’s Investors Service. In a new report released on Monday, the company says the industry is stable thanks to demand, maintenance of balance sheets, and strong underwriting performance.

While the P&C market is steady now and in terms of a predicted outlook, insurance companies will face low investment yields and will have to navigate and increase in catastrophes.

The report, titles P&C Insurance – Canada 2017 Outlook – Stable on Modest GDP Growth, Strong Underwriting points out that insurers must focus on consolidation through this period. The current market is dominated by the three largest insurance providers, who represent 36% of the nation’s premiums. This is a 30% increase from five years ago.

“As consolidation continues, industry leaders will benefit from stronger pricing power and the advantages of scale in both distribution and claims,” said Jason Mercer, an assistant vice president and analyst at Moody’s. “There will also be a shift away from using brokers to sell insurance toward direct and agency models.”

With low investments and an increase in catastrophes, the larger carriers are best placed to deal with challenges in the P&C industry. The Fort McMurray wildfire last May highlighted how natural catastrophes can affect the insurance market. It was the largest insurance loss in Canadian history and cost the industry $4 billion.

Looking at Ontario specifically, Moody’s says personal lines should remain steady because of a current levelling of auto insurance premiums in the province. This is due to government efforts to lower prices, which while not working entirely have stabalized the normally volatile Ontario auto insurance market.

 “Moody’s outlook could change to negative should there be a significant jump in catastrophe exposures, a 10% decline in industry capital or a drop in our GDP growth forecast to below 1%,” the release said. “Factors that could drive a positive outlook include P&C pricing exceeding loss cost trends, interest rates gradually rising 2%-3% from current levels, and/or materially stronger economic growth.”

SOURCE: https://www.moodys.com/