Best: Canadian P/C Insurers Seeing Profits Shrink

Canada’s property/casualty insurance sector is stable, but strong capitalization and profitability provide the ingredients for continued softening in the market.

Pricing is down across major commercial lines, returns are diminishing, and profits are expected to continue falling until rates recover. Statistics show the following:

-- Net income for 2007 was about C$4.6 billion, down 3.5% from 2006.

-- The operating ratio was 83.1, up from 82.3, while return on equity was
15.0%, down from 17.1%.

-- Numerous and severe summer and winter storms marked 2007, and harsh
weather continued into the first half of 2008, affecting property and
automobile claims.

-- Net underwriting income in 2007 was C$2.3 billion, down 18.1% from 2006,
and the combined ratio increased to 93.2 from 91.5.

- Auto insurers’ 2007 net loss ratio increased to 70.8 from 67.5.

-- The personal property net loss ratio held relatively steady at 66.7 in
2007, compared to 66.4 the year before.

-- Commercial property insurers’ net loss ratio jumped 4.1 points to 56.2.

-- Net investment income was up 12.6% in 2007, but growth was slower than
in 2006.

-- A.M. Best projects further declines in profits through 2008 amid
challenging underwriting and investment conditions.