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Market & Cycle How Long Can We Stay Profitable? A Canadian Perspective

Join Kevin A. Lee as he presents a Canadian perspective on the P&C industry's ROE, market composition, regional/line of business results, and the impact of auto insurance. Discover what is to blame for the cycle and whether it can be avoided. Find out what to expect in the future and what can be done to navigate the challenges. Presented by IAO Actuarial Consulting Services Inc.

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Market & Cycle How Long Can We Stay Profitable? A Canadian Perspective

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  1. Market & Cycle How Long Can We Stay Profitable?A Canadian Perspective Presented by: Kevin A. Lee FCAS, FCIA Executive Vice-President IAO Actuarial Consulting Services Inc.

  2. Table of Contents • P&C Industry ROE • Market Composition • Regional / Line of Business Results • Auto Some More • What is to Blame for the Cycle? • Can the Cycle be avoided? • What to Expect

  3. P&C Industry - ROE

  4. P&C Industry - ROE

  5. P&C Industry - ROE

  6. ROE Comments • Cycle is evident • Most recent is very short and severe – trough to peak in 3 years • 9/11 what was the impact? • Most drastic in history? • Insurers better than reinsurers in latest peak • Small had less extremes then largest • Raises interesting questions – more later

  7. Market Composition Insurers (2007)

  8. Market Composition Top 5 Insurers (2007)

  9. Market Composition Large Insurers (2007)

  10. Market Composition Medium Insurers (2007)

  11. Market Composition Small Insurers (2007)

  12. Market Composition Auto by Region (2007) Source: IICC

  13. Market Composition Comments • Huge auto share • As auto goes, so goes the industry • More rate regulation in auto makes cycle more severe – a dam that bursts • Large companies have larger share of auto – helps explain some of the earlier ROE slides

  14. Automobile

  15. Automobile Loss Ratio

  16. Automobile ROE

  17. Automobile Trends Province 2007 Overall Loss Loss Ratio Trend • Newfoundland 63% 6.0% • Nova Scotia 51% -0.5% • New Brunswick 51% -2.8% • Prince Edward Island 53% -0.9% • Quebec 61% 5.4% • Alberta 63% 8.6% • Ontario 78% 9.0%

  18. Personal Property

  19. Personal Property Loss Ratio

  20. Personal Property ROE

  21. Commercial Property

  22. Commercial Property Loss Ratio

  23. Commercial Property ROE

  24. Commercial Liability

  25. Commercial Liability Loss Ratio

  26. Commercial Liability ROE

  27. Regional / Line of Business Comments • Wild ride in Atlantic Canada – always ignored • Prepare for one in Alberta – auto minor injury regulation • Property relatively stable • Auto is the culprit

  28. Auto Some More • Joe Average hates auto insurance • Auto insurance in Canada is highly politicized • Rate regulators put constant downward pressure on rates • Companies eventually respond • Public outcry • Changes to the auto product • If changes are initially successful, calm ensues, • But . . . the cycle eventually repeats

  29. What is to Blame? • Yes, yes . . . Economic cycles, catastrophic events, etc. • But … • The product itself • Human nature in general • Company management • actuaries

  30. Can Anything Be Done? • Yes, but we will always have a cycle • Do your rate indications – where are they? • Do your rate indications – do them more often • Stop being so passive – leadership is needed • Better communication

  31. What to Expect • The cycle will repeat • Relative rate adequacy has slipped especially Ontario Auto • Industry ROE results are still okay • Market likely to remain soft until industry ROE results deteriorate. • Eventually markets will harden

  32. END OF PRESENTATION

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