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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. Table of Contents. P&C Industry ROE Market Composition Regional / Line of Business Results Auto Some More
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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.
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
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
Market Composition Auto by Region (2007) Source: IICC
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
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%
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
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
What is to Blame? • Yes, yes . . . Economic cycles, catastrophic events, etc. • But … • The product itself • Human nature in general • Company management • actuaries
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
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