A.M. Best Special Report: Canadian Property/Casualty Insurers Prosper, But Prolonged Soft Market May Lie Ahead

Business Wire, Sept 18, 2007

OLDWICK, N.J. -- There's no room for complacency as Canadian property/casualty insurers enjoy another solid year. Profitable underwriting, growth in investment income and capital gains have boosted pretax net income, as A.M. Best Co.'s rating outlook for Canada's property/casualty market is stable. But abundant margin in the industry is setting insurers up for a soft market cycle.

* A.M. Best's outlook for the market reflects stronger capitalization; stricter underwriting standards; improved expense management; below average claims frequency; and stronger investment markets.

* Improved underwriting has driven the industry's success in recent years, with 2006 net underwriting income of nearly C$2.8 billion on about C$30.8 billion of net premiums earned - a modest underwriting ratio of 91.5.

* Invested assets have grown for most companies, while interest rates have improved and equity markets have strengthened, whetting management's appetite to boost returns further by adding more premium.

* Despite underwriting gains for the industry in 2006, the automobile line's net loss ratio deteriorated to 67.6 in 2006 from 64.5 in 2005.

* Larger companies are pursuing market share, while regulators maintain pressure on auto insurance pricing in the next 12 to 18 months.

* Milder weather patterns reduced the net loss ratio in personal property by 3.1 points to 65.2 in 2006.

* Assumed and net premiums written for registered reinsurers in Canada fell for the fourth straight year, probably due to freezes and rollbacks in auto rates, combined with higher net property retentions.

* Accident year reserve development has been favorable, and in 2006, reserve releases yielded nearly C$1 billion of pretax net income.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.