Insurance industry exhibits resilience through difficult circumstances

Swiss Re hosted their 25th Annual Canadian Statistical Breakfast at the Design Exchange in Toronto on March 30, 2010. The event was well attended and representatives from throughout the Canadian insurance industry met over breakfast to hear presentations from Swiss Re and Insurance Bureau of Canada (IBC). The event was hosted by Jean-Jacques Henchoz, Managing Director and Head of Swiss Re’s Canadian operations. Pierre Ozendo, CEO for the Americas, also joined the event.

After opening remarks by Mr. Henchoz, keynote speaker Stefan Lippe, Swiss Re Group CEO, gave a presentation on the Global Insurance Market Outlook.  Mr. Lippe was appointed Swiss Re’s CEO in February 2009 and has served on Swiss Re’s Executive Board since 1995. 

Mr. Lippe noted that through the virtually unprecedented crisis in the financial markets, the insurance industry experienced far fewer write downs and related capital raises than the banking sector.  Insurers and reinsurers continued to provide coverage and pay claims during the turmoil and the capital base of Canadian insurers specifically was little affected.

The lasting impacts of the financial market upheaval, Mr. Lippe explained, were a strong decline in commercial insurance demand in the non-life sector, low investment yields, deteriorating underwriting results and reduced profit potential for the industry.  This has resulted in industry capital needs outpacing premium increases and reinsurers assuming new risks on their balance sheets.  Longevity risks, natural catastrophe exposures and liability risks are increasing globally, Mr. Lippe said. The reinsurance industry is absorbing these risks and partially transferring them to the capital markets through Cat bonds, insurance-linked securities and related products including industry loss warrants (ILW) and sidecars.

Mr. Lippe’s speech was followed by presentations from Insurance Bureau of Canada Vice-President, Ontario, Ralph Palumbo, and Vice-President, Policy, Barbara Sulzenko-Laurie. 

The 2009 combined ratio for the Canadian P&C insurance industry was 100.9%, Ms. Sulzenko-Laurie stated, down slightly from 2008.  This level is too high for the industry to generate risk appropriate returns in the current low interest rate environment.  Direct loss ratios were largely unchanged across all lines in 2009, however the direct loss ratio for Ontario auto increased by 23.5 points to 148%, equal to a total of $907 MM (CAD). This is particularly relevant as Ontario was responsible for 47% of Canadian direct premiums earned in 2009, with Auto representing 57% of all premiums earned in Ontario. 

Excessive taxes are among the major issues facing the industry currently, Ms. Sulzenko-Laurie explained. P&C insurers had a total tax burden of 69% of earnings in 2008, more than double the rate for large banks and other major Canadian corporations.  These fixed taxes and additional regulatory costs account for 13.8% of the average cost of an insurance policy to consumers in Canada.

The IBC presentations were followed by a Q&A session where the presenters fielded questions from the audience.  The presenters agreed that the conservative investment policies in Canada had shielded the industry from some of the major losses seen in other parts of the globe and expressed hope that a brighter future would emerge in 2010.  Jean-Jacques Henchoz closed the breakfast by thanking the presenters and the guests for attending and expressed his hope that everybody would be back for the 26th annual Swiss Re Canadian Statistical breakfast in 2011.

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