2023 P&C financial results return to Earth

Gravity brought financial results for Canada’s property and casualty insurance industry back down to Earth in 2023, despite a rebound to pre-pandemic investment returns.

“As we predicted last year at this time, the abnormally high industry returns for 2021 and 2022 began to return to historically average levels in 2023,” retiring Property and Casualty Compensation Corporation (PACICC) board chairman Glenn Gibson said at PACICC’s AGM in Toronto Thursday.

The industry grew its premiums by 8% in last year and was buoyed by a big swing in investment income since 2021, thanks in part to higher interest rates in 2023, Gibson said.

Even so, the industry reported a $94-million underwriting loss in 2023. The 9.1% increase in insurance service expenses (which include claims costs) didn’t help.

All told, Canada’s P&C insurance industry reported a return on equity (ROE), a measure of profitability, of 11.5% during the first nine months of 2023. This is in line with the industry’s 47-year average between 1975 and 2022 of 10.5%.

Early in the pandemic, during the first nine months of 2021, the industry reported an historically high ROE of about 18%. That slipped to 13.3% in 2022, although that was still above the industry average.

The underwriting losses were mainly due to a high Net Insurance Services Ratio (NISR) result in personal property lines.

Related: How the industry’s ROE is trending

The NISR is a new IFRS-17 accounting term. It’s similar to a loss ratio (net claims incurred divided by net premiums earned), except it produces higher numbers. That’s because it also factors in acquisition expenses — including commissions and reinsurance — as well as the impact of onerous contracts.

In personal property lines, PACICC reported an NISR of 94.1% as of September 2023. That ballooned out to 111.6% by the end of 2023, in large part due to $3.1 billion in catastrophic insured losses last year, led by record wildfire losses in Canada.

“For comparison, the NISR was 92.6% for auto insurance, 86.6% for commercial property and 80.2% for liability [in 2023],” Gibson said.

Higher interest rates buoyed insurers’ investment returns last year, Gibson reported.

“The investment results for the P&C market hit an all-time low [in 2022], with its substantial bond portfolio being negatively impacted by a sharp increase in interest rates,” Gibson said. “And in 2023, this was largely reversed. PACICC member insurers are now back to reporting more normal levels of positive net investment results.”

In 2021, the Canadian P&C insurance industry reported investment income of $2.35 billion. That cratered to just $156 million in 2022.

“Over the first five months of 2023, the P&C insurers were reporting return on investment of 2.7%,” Gibson said. “And over the same period in the previous year, that figure was 2.2%. That represents a $1.8-billion swing in industry profitability in just one year.”

But “while investment returns increased over the past year, the industry insurance results were slightly worse,” he added.

Gibson said he expects 2023 Q4 will return a ‘solid’ result for the industry. He also predicted the year-end final numbers will show an above-average ROE when all things are considered.

Feature image courtesy of iStock.com/NiseriN