Insurers’ auto insurance appetite sinks amid Alberta rate cap
Insurers’ auto insurance appetite sinks amid Alberta rate cap | Insurance Business Canada
Insurance News
Insurers’ auto insurance appetite sinks amid Alberta rate cap
One carrier points to underwriting losses beyond market exit
Insurance News
By
Gia Snape
Canadian insurers’ appetite to write auto insurance in Alberta continues to plunge amid the province’s fixed rate cap.
The rate cap, implemented in January 2023, prevents insurers from increasing auto insurance premiums above 3.7%. The move has been criticized for creating an unfavourable growth environment for insurers.
Alberta has since introduced a “good driver” rate cap as a stop-gap measure as it seeks long-term reforms. Despite this, the province has seen several auto insurance providers withdraw, including Definity-owned Sonnet Insurance and Aviva Canada, while Canada’s largest insurance company, Intact Financial Corporation, has signalled lessening appetite in Alberta.
Definity expects ‘tens of millions’ in underwriting losses
In a Q2 2024 earnings call, Definity’s chief financial officer, Philip Mather, said the company expected continued underwriting losses into 2025 from its auto insurance portfolio under its Sonnet brand.
Mather expected losses from written premiums in Alberta will trickle into the next few quarters.
“We anticipate around $50 million in earned premiums through 2025, with half expected in the next couple of quarters and the rest in 2025,” he said.
“Under the new accounting standards, we expect to see tens of millions in underwriting losses over the next few quarters due to this portfolio and the ongoing requirement to underwrite business and recognize earnings over the next six quarters.”
Definity president & CEO Rowan Saunders noted that despite efforts to work with the Alberta government, the province’s rate cap, coupled with inflation, dealt a significant blow to Sonnet’s profitability.
“We’ve signalled for some time that the regulatory changes in Alberta have made it challenging for a company like Sonnet,” Saunders said during the Q2 2024 earnings call.
Given current trends in Alberta, Saunders expressed concern the rate cap won’t keep up with rising loss costs. “We couldn’t see a path to break even or profit in the foreseeable future,” the CEO added.
Auto insurance makes up about 5% of Sonnet’s portfolio, but the pullout is “not material” for the broader company, Saunders said, representing less than 1.5% of its overall business.
Intact’s appetite for Alberta auto insurance ‘reducing’
Intact Financial Corporation has also signalled its dwindling appetite for writing auto insurance in Alberta. CEO Charles Brindamour said they have put “clear solutions” to the province’s challenges on the table, but are still awaiting action.
“Our appetite in this province is reducing at a pretty good speed,” Brindamour told analysts during Intact’s Q2 2024 earnings call.
“It’s very hard for the industry, and, as a result, players have been exiting the market. I do think that if the cap stays in place, you’ll see more exits.”
“After careful review of our direct-to-consumer business, we had to make the difficult decision to exit as the current environment in Alberta doesn’t foster growth,” said Aviva Canada personal lines managing director Susan Penwarden at the time.
Aviva said its claims costs in the province had outstripped the premiums collected for several years. It noted litigation costs were the biggest contributor to higher auto insurance premiums for Albertans.
“We acknowledge that the Albertan government has launched a consultation on auto insurance reforms, and we are committed to working with the government to find solutions for Albertans and insurers,” said Penwarden.
Do you have something to say about carriers’ recent actions in Alberta’s auto insurance market? Please share your comments below.
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