P&C reserves running low after tough 2018

Published: April 18, 2019

Updated: April 19, 2019

Author: Luke Jones



Property and casualty insurance companies in Canada are experiencing a reserve shortage after the industry reserves dipped to a seven-year low in 2018.

The MSA Q4 2018 Quarterly Outlook shows reserve releases were at 5.92% last year in terms of a percentage of loss development. This number is a significant decline from the 9.37% reserve release observed in 2017. Indeed, between 2012 and last year, the figure never fell lower than 6.4%.

Joel Baker, president and CEO of MSA Research said the P&C industry in Canada now has “less gas in the reserve tank” and “lower reserve releases resulted in higher loss/combined ratios [in 2018]. Whether reserve releases will revert to norm at the end of 2019 remains to be seen.”

MSA reports the combined ratio across all Canadian insurers was 98% in 2018, up two percentage points compared to 2017. The elevation came despite a direct premiums written growth by 8% during the year.

The tough market conditions can largely be attributed to rising claims costs, which are now higher than revenue for the Canadian P&C industry. Net income declined 20% through 2018. Claims costs grew by 15.2% and underwriting costs by 11.3%, dropping underwriting income from $1.7 billion during Q4 2017 to $788 million during the same period last year.

MSA’s report also shows catastrophe payouts topped $2 billion for insurers in Canada during 2018, with 12 catastrophe events recorded.

“There was no mega-loss in Canada in 2018, but the frequency of events has taken its toll, as these smaller events often remain within primary companies’ retention,” Baker said.